PPF updates its valuation guidance

The Pension Protection Fund has updated its collection of valuation guidance notes to reflect how the ECJ decisions in Hampshire, Hughes and Bauer judgments affect the calculation of PPF compensation. The applicability of these EU decisions under UK law following Brexit was specifically preserved in regulations made in late 2023 and impact the calculation of PPF benefits as follows:

• Hampshire – the ECJ ruled in September 2018 that each individual member should receive at least 50 per cent of the value of their accrued old age benefits if their employer becomes insolvent. Now regulations are in force which retain the effect of the Hampshire judgment for such schemes and incorporate what the PPF refers to as a “50 per cent value test”. The test applies to schemes entering assessment before January 2, 2024.
• Hughes - the Court of Appeal ruled in July 2021 that the PPF compensation cap was unlawfully discriminatory and must be disapplied. Regulations are now in force that remove the now redundant references to the compensation cap, and the 50 per cent test resulting from the Hampshire ruling now applies.
• Bauer - the ECJ ruled in December 2019 that a loss of less than 50 per cent of the value of accrued scheme benefits could be ‘manifestly disproportionate’ if, as a result of the reduction, the member would have to live below the at-risk-of-poverty threshold determined by Eurostat for the Member State concerned. By contrast with Hampshire and Hughes, no action was taken to preserve the effect of the Bauer judgment. Therefore, in accordance with the 2023 Act, the effect of the Bauer judgment will not apply to schemes with an assessment date falling on or after January 2, 2024. The level of PPF compensation is not required to take into account the risk of the member living below the at-risk-of-poverty threshold.

The new guidance must be used for valuations with an effective date on or after January 1, 2024, and for section 179 valuations which are signed on or after January 17, 2024.