European Court of Justice to rule on fate of final salary pension schemes

The fate of many final salary pension schemes will be decided by a European court ruling on Thursday about whether the Pension Protection Fund (PPF) is obliged to give members of pension schemes their whole entitlement when a company becomes insolvent.

The European Court of Justice will rule on 25 January in a case brought by unions against the UK government. If the advocate-general’s recommendation is upheld as expected, the government will lose its case and have to find money for employees when companies go bust. This will filter on to employers, who are likely to face massively increased bills from the PPF.

Colin Mouque, director of financial services firm Alexander Forbes, said that this could signal the end of defined-benefit schemes.

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“We are likely to see an increase in the number of companies taking the controversial step of offering incentives to members to transfer out of final salary schemes,” he said.

“It is no surprise that the news of the EU ruling coincides with WH Smith’s decision to close its scheme to all accrual. Final salary schemes are no longer a sustainable option for UK businesses.”