Earlier this year it was announced that the UK’s Financial Assistance Scheme (“FAS”) would close to applications from 1 September 2016.
This does not affect pension plans that are currently progressing through the notification and qualification process or pension plans that have already qualified for assistance. However, any qualifying pension plans that have not yet started the process need to move quickly as they now have less than a month to make a notification to the FAS.
It’s fair to say that when the creation of the FAS was first announced on 14 May 2004, no one expected that it would still be accepting applications in 2016. This may, in part, be explained by the fact that the FAS’s scope has been extended considerably over the years. In its annual report and accounts for 2015/16, the Pension Protection Fund (“PPF”), which took over the management of the FAS in 2009, reported that the number of pension plans which had completed the qualification process was 1,068 with some 155,000 members entitled to assistance from the FAS.
Pension plans which may qualify for the FAS are under-funded defined benefits plans which either:
- commenced winding up between 1 January 1997 and 5 April 2005 where the sponsoring employer is insolvent and cannot meet the funding shortfall; or
- commenced winding-up after 5 April 2005 and are not eligible for the PPF because the sponsoring employer became insolvent before 6 April 2005.
FAS assistance is provided to members of qualifying pension plans by a top-up to the reduced level of benefits which would otherwise be provided to the member on the winding up of the plan. The top-up brings the benefits broadly up to the level of the compensation that is payable under the PPF, i.e. 90% of the member’s pension subject to a cap.
The adequacy of the compensation payable under the PPF has been challenged in the Grenville Holden Hampshire case recently heard in the Court of Appeal. In this case, the application of the cap on the PPF compensation payable and the limited scope of increases to compensation payments resulted in the member concerned receiving less than 50% of the pension he had been receiving from the pension plan before the plan entered the PPF. The PPF was established by the UK government to comply with its obligations under the EU Insolvency Directive and the case concerns whether the level of PPF compensation is adequate to comply with those obligations. The Court of Appeal has referred the matter to the European Court of Justice so this question remains unanswered at present. In addition, it remains to be seen how Brexit might affect this case and also what impact, if any, this case might have on the level of top-ups provided by the FAS.