European Court of Justice Case C-278/05: Carol Marilyn Robins v Secretary of State for Work and Pensions
In this long awaited decision, the ECJ held that the UK has breached EU laws on pension protection measures, but does not need to provide full protection of expected pension-entitlements and will only be liable to compensate if it showed ‘manifest and serious disregard’ in interpreting EU law.
In 2002 ASW Limited became insolvent, resulting in the winding up of its final salary pension schemes. A substantial deficit meant that some non-pensioner members found their benefits were considerably reduced. Two members, whose benefits were reduced to 49% and 20% respectively, brought a compensation claim against the UK Government, for failure to protect their pension rights in the event of the insolvency of their employers. The claim was brought under Article 8 of the European Union Insolvency Directive which provides that:
"Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer... at the date of the... employer’s insolvency in respect of rights conferring on them... entitlement to old-age benefits... under... company pension schemes...."
The High Court referred the following three questions to the ECJ:
- are Member States required to fund themselves the rights to old-age benefits and if so to fund them in full?
- is UK legislation compatible with the Directive?
- what is the liability of the Member State in the case of incorrect transposition of the Directive?
Member states do not need to finance rights to old-age benefits themselves in the event of an employer’s insolvency. Member States have some latitude as to the means they adopt to ensure protection. They could provide for public funding, but might otherwise choose to oblige employers to insure or guarantee old-age benefits. Further, the Directive does not require the government to provide measures to fully guarantee old-age benefit rights.
Whilst acknowledging that there is no precise minimum level of protection which a Member State must provide, the Court held that the UK system which in some circumstances only guaranteed less than half of expected entitlements did not in fact ‘protect’ within the meaning of the Directive and was therefore incompatible with EU law.
Given the broad wording of the Directive and the discretion left to Member States, a Member State is only liable for losses where it has incorrectly transposed the Directive if it showed a "manifest and serious disregard" for the limits set on its discretion.
The case is now remitted back to the High Court, who must give effect to the ECJ’s ruling. In determining this, the High Court will need to consider all circumstances, including the lack of clarity of the Directive on the level of protection required and a 1995 European Commission report which concluded that the UK rules to implement it 'appear to meet the requirements [of the Directive]'.