Govt pension protection ‘inadequate’
The government offered “inadequate” pension protection for workers whose companies went bust but does not necessarily have to compensate them, a court has ruled.
The European court of justice (ECJ) found the government did not properly implement a 1983 European Union directive requiring member states to take “necessary measures” to ensure workers’ pensions were safe if their firm went bankrupt.
However, to the relief of ministers and employers, the court said it was up to the UK courts to decide if the government would have to compensate such workers. It also acknowledged the EU directive lacked “clarity” on the level of protection required.
The ruling came in the case of 1,000 former employees of Allied Steel and Wire (ASW), who lost the majority of their pensions when their firm went bust in 2002.
They are not covered by the Pension Protection Fund, as it only came into force in May 2005, and are facing a lean retirement despite making up to 30 years of contributions. Unions are demanding government makes up the shortfall.
Derek Simpson, general secretary of the Amicus union, welcomed today’s ruling as a victory, saying ministers now had a “moral obligation” to reimburse the thousands of people who lost their pensions through no fault of their own.
“We have consistently said that we will defend our members’ rights on pensions and this case demonstrates that successive governments have failed workers who have heeded their advice to save for their retirement,” he said.
But the Department for Work and Pensions (DWP) also welcomed the “common sense judgment”, saying although it had “every sympathy” for those who lost their pensions, the EU directive did not require countries to guarantee workers’ pensions in full.
There were fears that if the ruling went against the government, it would have had to force companies to contribute far more to the Pension Protection Fund to enable it to cover 100 per cent of workers’ pensions, compared to just 90 per cent now.
Some reports suggested this would push contributions by firms from the current rate of £675 million a year to as much as £4 billion – something the Confederation of British Industry (CBI) today said would have been “totally unaffordable”.
Deputy director general John Cridland said the ECJ ruling was a “victory for common sense”, but added that any compensation for the ASW workers must be born by the government, not the Pension Protection Fund.
However, shadow pensions secretary Philip Hammond warned that those who lost their pensions were “still in exactly the same desperate position” and demanded the government “show leadership in resolving this crisis”.
Liberal Democrat pensions spokesman David Laws said the ruling showed people who lost their pensions before the protection fund was set up were “grotesquely short-changed” and said ministers must now recognise their “moral responsibility” to help.
Last year the parliamentary ombudsman said the government should compensate 85,000 workers who lost out on their pensions, saying official leaflets advising them on how to save for their retirement were misleading, but ministers have refused to do so.
