The Secretary of State for Work and Pensions v Paul Hughes and Others
| Jurisdiction | England & Wales |
| Judge | Lady Justice Asplin,Lord Justice Green,Lady Justice Elisabeth Laing |
| Judgment Date | 19 July 2021 |
| Neutral Citation | [2021] EWCA Civ 1093 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case Nos: C1/2020/1342 AND C1/2020/1356 |
[2021] EWCA Civ 1093
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION (Administrative Court)
The Hon. Mr Justice Lewis
[2020] EWHC 1598 (Admin)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Asplin
Lord Justice Green
and
Lady Justice Elisabeth Laing
Case Nos: C1/2020/1342 AND C1/2020/1356
Case No: C1/2020/1342:
Mr Jason Coppel QC and Ms Zoe Leventhal (instructed by GLD) for the 1 st Appellants
Mr Gerry Facenna QC and Mr James Bourke (instructed by Walkers' Solicitors) for the 1 st, 2 nd and 6 th – 25 th Respondents
Mr Tom de la Mare QC and Iain Steele (instructed by Farrer & Co LLP) for the 3 rd – 5 th Respondents
Case No: C1/2020/1356:
Ms Jemima Stratford QC and Mr James McClelland QC (instructed by Hogan Lovells) for the 2 nd Appellants
Mr Gerry Facenna QC and Mr James Bourke (instructed by Walkers' Solicitors) for the 1 st, 2 nd and 6 th – 25 th Respondents
Mr Tom de la Mare QC and Mr Iain Steele (instructed by Farrer & Co LLP) for the 3 rd–5 th Respondents
Hearing dates: 4 th–7 th May 2021
Approved Judgment
Lady Justice Asplin, Lord Justice Green and
These two linked appeals are brought in relation to the Order of Lewis J (as he then was) (‘the judge’) dated 30 July 2020, allowing the claimants' judicial review claim. The claim, brought by twenty-four individual claimants and the British Airline Pilots Association (“BALPA”), (together referred to as the “Claimants”) concerns the level of compensation paid by the Board of the Pension Protection Fund (the “PPF”) in lieu of old-age benefits payable under pension schemes sponsored by the employees' former employers, which have since become insolvent.
The Claimants contend that: the provisions of Chapter 3 of the Pensions Act 2004 (the “Act”) which impose a cap on the PPF compensation for those who have not attained their normal pension age (“NPA”) at the date on which their respective schemes enter what is described as the assessment period, amounts to unlawful age discrimination; and that the method adopted by the PPF to ensure that they receive at least half of the value of their accrued entitlement under their respective schemes is incompatible with Article 8 of Directive 2008/94/EC on the protection of employees in the event of the insolvency of their employer (the “Directive”).
The claim has arisen in the context of a series of long-running disputes concerning the PPF's approach to compensation which have involved proceedings both in this jurisdiction and in the Court of Justice of the European Union (‘the Court of Justice’). The present appeals raise issues of profound importance, not only to the Claimants themselves (some of whom are said to have suffered significant reductions in the old-age benefits they expected to receive prior to their employer's insolvency), but more broadly, particularly given the issue as to the lawfulness of the primary legislation setting out the framework for PPF compensation.
Compensation and the Compensation Cap
By way of brief summary, the compensation scheme created by the Act protects employees where their employer enters insolvency and the assets of pension schemes sponsored by their employers are insufficient to meet certain protected liabilities. In such circumstances, the pension scheme's assets are transferred to the PPF, the scheme trustees are discharged from their obligations, the PPF becomes responsible for paying compensation in accordance with Schedule 7 to the Act to the individual members instead of the benefits they would have expected to receive from their original scheme, and the scheme is treated as having been wound up: section 161(1) and (2) of the Act.
The level of compensation payable by the PPF differs depending on whether a member has attained the scheme's NPA by the time the assessment period begins (in general terms, the date of the employer's insolvency): section 132(2), 162 and Schedule 7 to the Act. Members who have attained NPA by the beginning of the assessment period (or retired early for health reasons) receive compensation equal to 100% of the annual rate of the pension under the admissible rules of their scheme. Members who have not attained NPA at that point receive 90%: among others, Schedule 7, paragraph 3(2) – (7) of the Act. Individuals in the latter group are also subject to a prescribed compensation cap, such that if the compensation payable by the PPF would exceed the cap, they receive only 90% of the capped amount: among others, Schedule 7, paragraphs 3(10) and 26. Amendments were made by Schedule 20 to the Pensions Act 2014 (which introduced paragraph 26A into Schedule 7 to the Act). They apply from 6 April 2017 onwards. The effect of amendments is that the compensation cap for those with more than 20 years' pensionable service is increased by 3% for each year of pensionable service in excess of 20 years. The cap was initially fixed at £27,777.78 per annum in 2005 and has since increased in line with earnings, reaching £40,020.34 per annum in 2019/20.
There are also provisions by which the value of the compensation is increased in the period before the individual reaches NPA (when the compensation becomes payable) and after it comes into payment. Annual periodic compensation is increased annually by the lesser of: (a) price inflation or (b) 2.5% (Schedule 7, paragraph 28(3)). The increases are not applied to amounts payable in respect of pensionable service before 6 April 1997.
The widow or widower of a pensioner is also entitled to compensation from the date of the pensioner's death and continuing for life. The annual rate of that periodic compensation is half of the annual rate of compensation to which the pensioner would have been entitled if they had not died: paragraphs 4(2) and (3) of Schedule 7 to the Act. The “half benefits” rule applies irrespective of the survivors' benefits prescribed in the member's original pension scheme. In other words, even if the survivor was entitled to 2/3 of the scheme member's benefits under the original scheme rules, s/he will only receive compensation amounting to half of the compensation paid to the pensioner.
The Court of Justice's judgment in Hampshire, the decision of the PPF under challenge and these proceedings
Mr Hampshire, one of the Claimants in these proceedings, previously brought a claim relating to the PPF's assessment of the pension scheme of which he was a member, and to the application of the compensation cap. Those proceedings reached this Court, which made a reference to the Court of Justice regarding the interpretation of Article 8 of the Directive. The Court of Justice handed down judgment on that reference in 2018, in Hampshire v Board of the Pension Protection Fund (Case C-17/17) [2019] I.C.R. 327 (“ Hampshire”). It ruled that Article 8 requires Member States to guarantee to each individual employee compensation corresponding to at least 50% of the value of his or her accrued pension entitlement, in the event of the employer's insolvency. It also ruled that Article 8 is directly effective, and thus may be relied upon by individuals in national court proceedings.
In response to the decision in Hampshire, and pending the introduction of legislation to address the issue, the PPF took steps aimed at ensuring that compensation paid to members of schemes for which it had assumed responsibility would not fall below the 50% threshold. By a decision dated 5 November 2018 (“the Decision”), it adopted an approach under which it would conduct a one-off actuarial valuation of pension benefits payable to the scheme member under his or her original scheme; compare that with the amount of compensation the PPF would pay the member over time, and, if it was estimated that the latter would be less than 50% of the former, it would pay an additional amount of compensation to meet that minimum threshold. This has been referred to as a “Hampshire Uplift”.
The Decision manifested in the Hampshire Uplift, and the imposition of the compensation cap (“the cap”) were challenged by the Claimants by an application for judicial review. The matter came before the judge, who allowed the claims. We will address his conclusions in detail below, but in essence, three aspects of his decision are central to the present appeals. First, the judge held that the provisions in the Act which cap the compensation payable to scheme members who have not achieved NPA at the date of their employer's insolvency amounted to unlawful age discrimination, contrary to Article 21(1) of the EU Charter of Fundamental Rights (‘the Charter’) and Article 14 (read with Article 1 Protocol 1) of the European Convention on Human Rights (‘the ECHR’). Before coming to that conclusion, the judge granted the claimants an extension of time to bring that claim. Second, he held that the PPF's approach to the Hampshire Uplift did not comply with the requirements of Article 8 of the Directive, as articulated by the Court of Justice in Hampshire. Its one-off calculation meant there was a possibility that some scheme members might ultimately receive less than 50% of their original entitlement, and the system needed to have a way of identifying and dealing with that eventuality; absent such a checking mechanism, the PPF's decision and, therefore, the use of the Hampshire Uplift, was unlawful. Third, the...
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