This landmark pension case could mean big payouts
Defined-benefit members in bankrupt firms’ pension schemes could be due a payout after a landmark High Court judgment.


Several thousand high-earning savers could be in line for compensation after a landmark High Court judgment that Pension Protection Fund (PPF) rules amount to age discrimination.
The dispute centres on the retirement incomes paid by the PPF, the industry lifeboat scheme, to members of defined-benefit pension schemes when their employers go bust. The PPF guarantees that members who have reached retirement age and begun drawing their pension will not lose any benefits. But for those yet to reach retirement age, there is a cap on the payout: around £41,400 for savers aged 65.
A dramatic impact
Since most pensions do not exceed this cap, few people are affected. But for higher earners with substantial pension entitlements, the effect can be dramatic. In one case considered by the High Court, a pilot saw his expected pension fall by 75% from £66,000 a year to just £17,000. Now, however, the High Court has ruled the PPF cannot legally apply a cap to younger savers that older savers do not face. So savers whose benefits transferred to the PPF before they reached the normal pension age for their scheme should now receive their pension entitlement with no cap applied. Savers hit by the cap who have already begun receiving smaller pensions will be entitled to back payments of the income they have missed out on – although these will be limited to six years’ benefits.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The judgment won’t be implemented straight away, with the PPF and the Department for Work and Pensions considering an appeal. The PPF believes the ruling will cost it around £240m. It could also prompt further claims from PPF members unhappy about another age-related rule. Anyone transferring to the PPF before their scheme’s retirement age only receives 90% of their expected pension, irrespective of the size of their entitlement. A challenge to the 90% limit – not considered by the High Court in this case – on age-discrimination grounds could prove even more expensive for the PPF. It could lead to increased benefits for everyone who has transferred to the scheme before reaching their scheme pension age – more than 100,000 savers.
One other issue is high earners who transferred out of their pension scheme because they were worried their employer might go bust and their PPF benefits would be capped. The Financial Conduct Authority, the City regulator, says independent financial advisers should not base advice to savers on the possible insolvency of their employer or the PPF limits. Savers may now be able to bring a case against their adviser if they suggested transferring for this reason.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
-
Inheritance tax pension reforms will delay payments to grieving families and the taxman
The government is pressing ahead with plans to charge inheritance tax on pensions but there are warnings that it will be harder for executors to administer an estate and pay HMRC
-
More than a million pensioners set to be hit by tax on savings accounts
A combination of higher interest rates and frozen tax thresholds is dragging more people into paying tax on their cash savings
-
Klarna leads a financial revolution – should investors buy?
Klarna has ambitions to rewire the global payments system and has huge growth potential
-
Are venture-capital trusts worth investing in?
Venture-capital trusts are a tax-efficient way to invest in early-stage companies. But are they worth the risk?
-
Can Rachel Reeves save the City?
Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
'Gen Z is facing an AI jobs bloodbath'
Opinion It has always been tough to get your first job, but this year, it's proving tougher than ever. AI is to blame, says Matthew Lynn
-
Beazley: a compelling specialist insurer
The insurer Beazley is unusually profitable at present, and that looks set to continue. The stock is also a valuable portfolio diversifier, says Jamie Ward
-
Is Britain heading for a big debt crisis?
Opinion Things are not yet as bad as some reports have claimed. But they sure aren’t rosy either, says Julian Jessop
-
What is the Enterprise Investment Scheme and should you have one?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
What are wealth taxes and would they work in Britain?
The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?