Pension Protection law flaw

A flaw in the wording of the Pension Act 2004 has exposed a threat to the coverage of some pension schemes under the terms of the Pension Protection Fund.

The Pension Protection Fund is designed to provide a safety-net for members of defined benefit occupational pension schemes.

It was established in 2004 and pays compensation of up to 100% of the pension already in payment, or 90% for the majority of people below their scheme’s normal pension age.

The flaw in the law used to create the Pension Protection Fund (PPF) was exposed by the case of the George and Harding pension scheme, where members have discovered they do not benefit from coverage by the PPF.

This is the result of the wording in the Pension Act 2004 which defines ’employer’.

Because the George and Harding pension scheme was taken over by a firm called Zejwa in 2002, when the scheme was already closed, Zejwa is defined as a principal employer rather than the statutory employer.

This means that, when Zejwa went bust in 2009, the scheme did not qualify for membership of the Pension Protection Fund.

Whilst the PPF have offered to refund the PPF levies paid by Zejwa to the scheme trustees, this will be of little comfort to the 40 members of the pension scheme who are currently left without access to compensation.

We hope that this incident will highlight the need for the legislation surrounding the PPF to be ammended to include principal as well as statutory employers, particularly in the current climate where we expect to see a greater number of business insolvencies.

Photo credit: Flickr/Mr. T in DC