Pensions Action Group


Joint Press Release from Community and Amicus unions
January 2006

PAG comment: It is interesting to read the government’s defence in section 4 of the editor’s notes

Community and Amicus, the unions taking legal action in the European Court of Justice (ECJ) against the UK Government for failing to properly implement European law which would have protected the pensions 1,000 former steelworkers of the former ASW steel company in Cardiff and Sheerness, has been boosted by confirmation that the European Commission supports the unions’ case.

The case is expected to be heard by the ECJ in Spring 2007, although the unions are calling upon the UK Government to either settle now or support a call for the case to be heard sooner in order to end the misery of the former ASW workers and the estimated 65,000 UK citizens similarly affected. It is estimated that the UK Government faces a bill of up to £6 billion in pension liabilities.

Community and Amicus are taking the action because of successive UK Governments' failure to implement European law to protect workers pensions when their employers are declared insolvent. Article 8 of the European Insolvency Directive, should have been implemented in member states by 1983, but the Conservative Government failed to do so properly, the unions’ believe.

The European Commission has submitted its views to the European Court of Justice regarding the proceedings and has supported the unions’ case. In addition, in a European Parliamentary Answer to Jim Allister QC MEP, given at the beginning of January, that the Pension Protection Fund (PPF), which was established in the wake of the ASW scandal to ensure that pensions scheme members, do not suffer the same fate as the ASW pension schemes’ members is not itself sufficient to comply with the Directive.

When ASW went into liquidation it left behind it two pension schemes with serious deficits. The schemes cannot afford the pensions that were promised. Some members will receive very much less than they were entitled to. For example ex-employees in Cardiff have been told that they will receive only 14% of their expected pension, many of them after paying for 30 years or more into the scheme. In addition, widows whose husbands have subsequently died when they were in the late 50’s have received no financial support from the underfunded pensions schemes, whereas, if successive UK Governments had complied with Article 8 they would have received death in service benefits as well as a pension to live on.

Commenting on the Commission’s evidence supporting the Community and Amicus’ case, a spokesperson for both unions said:
“We have always believed that we had a strong case and the Commission’s evidence to the ECJ strongly supports that. If the PPF does not comply with Article 8 then how  can the UK be compliant before that when no effective protection was in place? We believe that Ministers in successive Governments throughout the 1980’s and 1990’s knew this but cynically hoped that they could get away with doing nothing. Now our members are paying the price. It is a scandal.

“Our members in Cardiff and Sheerness, and also the thousands of other workers who may benefit, are calling upon the Government to settle this case in order to end the hardship and uncertainty that the members of the ASW pension schemes are suffering. If they won’t do that then the very least we would expect them to do is support a call for the ECJ to hear this case at the earliest opportunity."

Editor’s Notes:
1) Community and Amicus issued a High Court claim on behalf of 1,000 pension scheme members of Allied Steel and Wire Ltd (ASW) from Cardiff and Sheerness who lost the bulk of their pensions when the company was declared bankrupt in 2002, leaving two pension funds in deficit. 
2) The unions commenced proceedings against the Government, not the company. The European Insolvency Directive requires all member states to put in place the measures necessary to protect pension rights in the event of insolvency. The unions’ case is that
The Government failed to put those measures in place and the unions maintain that the Government is obliged to provide compensation as a result.
3) Article 8 of the Insolvency Directive reads:
"Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer's undertaking or business at the date of the onset of the employer's insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors' benefits, under supplementary company or inter-company pension schemes outside the national statutory social security schemes."
4) The Government says that the existing legislation is sufficient to protect pension rights as required by European law. They are relying on:
     a) The fact that, in order to obtain tax approval, pension funds have to be held in a separate trust fund;
     b) The fact that to a limited degree, unpaid pension contributions will be by the National Insurance Fund;
     c) The Minimum Funding Requirement regime meant that pension schemes have to be adequately funded;
     d) The fact that if a pension scheme is contracted out of the State Second Pension (or its predecessor, SERPS) then members will be bought back into the State scheme as if they had not been contracted out;
     e) The Compensation Fund, which will make up the deficit if a scheme winds up and as the consequence of fraud there is insufficient money to pay all pensions;
     f) If a pension scheme winds up in deficit, the fact that pensioners get better protection because the law requires the scheme to give them priority.
The Commission agrees with us that none of these provisions are enough. They say that the Government is not obliged to guarantee underfunded pension schemes itself, but the Directive requires it to ensure that pension schemes are adequately funded at all times to pay for the pension rights which have been built up. If there is any possibility of underfunding (for instance because it takes time to rectify a deficit) then the Government has to ensure that there is a guarantee fund (such as the Pension Protection Fund) which will meet the deficit if the company becomes insolvent and unable to do so itself.
5) The ASW pension schemes collapsed before the Pension Protection Fund (PPF) was created. The PPF cannot bail them out therefore and the Government can’t point to the existence of the PPF to argue that UK law was sufficient to protect the ASW scheme members. But it seems to follow from the views that the Commission has expressed that the PPF in its current form would not be enough anyway. That is because the Commission’s view seems to be that all benefits already built up must be protected – not subject to the cap on benefits which the PPF can pay.
6) That is also the view the Commission expressed in a European Parliamentary Answer to Jim Allister QC MEP, given at the beginning of January. They appointed an independent expert to look at the UK Government’s compliance with European law. Examining the PPF on its own, the expert said in September last year that it was not sufficient to comply with the requirements of the Insolvency Directive. Now, in its observations to the European Court in the ASW case, the Commission has said that the remainder of UK law does not do so either.

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