Article 8 of Directive 2008/94/EC requires member states to protect pension scheme members' accrued benefits upon the insolvency of their employers.

Following much publicity after several high profile insolvencies and pension scheme members not receiving their pension benefits, the UK implemented this Directive by creating the PPF (and the Financial Assistance Scheme for employers who became insolvent before 6 April 2005).

The case of Hogan and others v Minister for Social and Family Affairs [2013] EUECJ C-398/11 concerned two Waterford Crystal pension schemes, where the Irish employer fell into insolvency in early 2009. Unlike the UK, in Ireland there is no statutory debt payable by the employer to the pension scheme when wind up is triggered. The members were expected to receive between 16-41% of their accrued benefits only; eight members brought proceedings before the Irish courts regarding breach of the Directive.

The Irish High Court referred a number of questions to the European Court of Justice ("ECJ"). The ECJ held that:

  • Article 8 applied directly to the claimants imposing a specific requirement on member states in favour of former employees on the insolvency of the employer. Either the employer must meet its obligations to the scheme members, or the scheme itself must do so.
  • l State pensions cannot be taken into account when considering whether a member state has fulfilled its Article 8 obligations.
  • l As far as a causal link between the insolvency and the member's loss is concerned, a member need only show that there was a deficit at the time of insolvency and that the employer's insolvency meant that it could not contribute sufficiently to the scheme to provide the benefits in full.
  • l The measures adopted by the Irish Republic did not fulfil the obligations of Article 8. The economic situation in Ireland was not a justification for a lower level of protection of employee's interests. Following the earlier 2007 case of Robins, member states were informed that Article 8 requires that an employee must receive, in the event of employer insolvency, at least half of his accrued pension benefits in an occupational pension scheme. Ireland had not correctly fulfilled that obligation.
  • l Ireland's failure to ensure that members would receive at least 49% of their accrued benefits was a sufficiently serious breach of Article 8 in and of itself to entitle the claimants to damages.

Whilst this case will be welcomed by members of Irish pension schemes winding up in deficit following employer insolvency, it has wider implications for the UK pension protection regime. In particular, the PPF compensation payable may be less than 49% of a member's benefits where members are caught by the compensation cap, and also where the member has taken normal early retirement and not yet reached normal pension age at the scheme PPF assessment date. The Hogan case suggests these aspects of the PPF compensation regime may need to be adjusted; if challenged, the Government/PPF could not argue difficult economic circumstances as an excuse for failure to comply with Article 8 obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.