Cicero Policy Briefer

Issue 9, February 2007

A blow to Government on pensions compensation

By Alex Macpherson

It was something of an incomplete victory. Last week, in the case Carol Marilyn Robins and Others v Secretary of State for Work and Pensions, the European Court of Justice ruled that the UK Government was not obliged to compensate thousands of workers who had lost their pensions when their employers went bust. However, by referring the question of liability back to the High Court and by branding the UK’s current level of protection of old-age benefit rights “inadequate”, the ECJ’s ruling in fact means that the door remains wide open for the reimbursement of pensions.

The ECJ was asked to answer three key questions:

1. whether Member States are required to fund the rights to old-age benefits themselves (and if so, in full);
2. is current UK legislation compatible with Council Directive 80/987/EEC of 1980, which protects employees in the event of their employers’ insolvency;
3. in the case of the incorrect transposition of the Directive, what is the Member State’s liability?

The answers were, respectively, no; no; and this was a matter to be decided by the national court.

It is difficult to escape the feeling that this could be the last in a series of blows to the Government on the matter. When the Allied Steel & Wire company collapsed in 2002, it became a test case, with Amicus bringing the case on behalf of more than 800 workers who had lost three-quarters of their pensions. Waiting on the judgment have been 125,000 further workers whose pension schemes were similarly wound up when their employers went bust, dating back to before 2004 when the government set up the pension protection fund to support occupational schemes.

The initial investigation by Ann Abraham, the parliamentary ombudsman, was damning, stating that the advice given by the Government had been “sometimes inaccurate, often incomplete, largely inconsistent and therefore potentially misleading”. Rejected by pensions secretary John Hutton, the case made its way to the ECJ, where an interim report by the advocate general said that the government was under a duty to ensure full protection of scheme members’ benefits. Though last week’s ruling overturns this, all eyes will now be on the 7 February High Court review—with the claimants believing that their case has only been strengthened.

The ECJ was blunt in its decision that “the United Kingdom system is…incompatible with Community law”; compensation will now depend on whether the claimants can prove that this breach was deliberate. With shadow ministers and pensions consultants queuing up to condemn the Government’s actions, the High Court review is sure to have serious repercussions. Could this be a second Equitable Life sort of case?

Alex Macpherson can be contacted on +44 (0)20 7665 9530 or click here to email.

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