The Pension Protection Fund’s (PPF) compensation cap for those below normal pension age is unlawful discrimination on the grounds of age, the High Court has stated.

In the court’s judgement, Justice Lewis noted that the differential treatment between those above pension age and those below it was “not objectively justifiable”.

The case centred around a claim by 25 claimants who received reduced pension benefits, after their employer went insolvent and its scheme entered the PPF, due to being below normal pension age and therefore having their compensation capped.

Current rules state that the basic level of PPF compensation for members of insolvent employer schemes that are transferred to the lifeboat is 100 per cent of the benefits fixed by the scheme if they are over pension age, and 90 per cent if they are under.

Separately, there is a cap on the compensation payable to those below normal pension age. These members receive 90 per cent of the compensation cap, not 90 per cent of the value of their accrued pension benefits.

The High Court has ruled that this cap is unlawful.

One of the claimants, Mr Hughes, took an early retirement to receive a pension at the age of 57, when the normal retirement age under the scheme was 60.

He received an annual pension on retirement of £66,245. However, his employer became insolvent two years later, when he was still below 60, and the cap on his compensation was applied.

Alongside a change in indexation and a removal of its protection, this resulted in his pension being reduced to £17,481, a reduction of almost 75 per cent.

The court has ordered that the claimants now receive compensation or benefits without any reduction by reason of the application of the cap and they can seek to recover arrears of compensation from the PPF by a period of up to six years.

Former Pensions Minister and LCP partner, Steve Webb, said that the court’s judgement could have a “much wider knock-on effect”.

“If it is discrimination to cap compensation on larger pensions only for those under pension age, there could be further legal challenge to the whole principle of only paying 90 per cent compensation across the board for those under pension age,” he added.

“This could have much more far-reaching implications for the overall size of the PPF levy and for the levy payable by individual schemes and employers.”

Commenting on the case, a PPF spokesperson said: “We’re studying the detail of the judgment carefully to decide our next steps, and we will work closely with the Department for Work and Pensions to understand how the UK government will respond. While we do so, we’ll continue to pay our members their current level of benefits.

“The government sets the level of compensation we pay, balancing the needs of members and the needs of our levy payers, so it’s for them to decide how to respond to the part of the judgment relating to the cap.”

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