We have previously reported on a gap in the coverage of the Pension Protection Fund (PPF) where a scheme which is eligible for PPF entry has an employer based overseas. Essentially the problem is that the list of "insolvency events" suffered by an employer which are required in order to qualify a scheme for entry to the PPF does not include events occurring outside the UK. It may in some circumstances be possible for secondary UK insolvency events to be triggered which could allow a scheme PPF entry, but this will generally require the employer to have a trading presence in the UK. In many cases, the initial insolvency of the employer would have resulted in the effective closure of any UK establishments, making secondary insolvency proceedings unlikely to succeed. Meanwhile these schemes remain technically "eligible" for PPF entry and are required to pay the annual levy despite members having no effective protection.
This is exactly what happened in the case of Olympic Airlines. The employer, which had UK-based employees and a UK pension scheme, had entered liquidation in Greece. The attempt to instigate secondary insolvency proceedings was rejected by the Court of Appeal as, by the time those proceedings were launched, Olympic Airlines no longer carried on commercial operations in the UK.
As I reported in February, the Government confirmed that it was "actively exploring whether it can amend PPF legislation on employer insolvency to enable members of the Olympic Airlines pension scheme to benefit". Regulations coming into force this month do just that - allow entry into the PPF for the Olympic Airlines pension scheme. They are so narrowly drawn that I think it unlikely any other scheme will be able to benefit from them. These regulations do not appear to have been subject to public consultation and so interested parties and representative bodies did not have the opportunity to comment on them.
We had hoped that the Government would look at this issue more widely and come up with a solution which would enable UK-based pension schemes with overseas employers to enter the PPF more easily. This has not yet happened and there is no indication that the Government is giving it any further consideration at the moment. There will almost certainly be other schemes in future in a similar position to the Olympic Airlines scheme. It is not satisfactory that members of these schemes do not have the same comfort of PPF protection as members of schemes which don't happen to have an overseas employer. It is also our view that the current legislation may well be in breach of EU law.
In the meantime, where a scheme which is eligible for the PPF has an overseas employer, trustees should be carefully considering the employer covenant and deciding whether they ought to be taking any steps to put additional security in place for their scheme. This is not just a problem for schemes with a sole overseas employer but also for multi-employer schemes where at least one employer is overseas.
As the law stands, trustees cannot guarantee PPF entry will be achieved if an overseas employer participating in a scheme is in financial difficulty. Trustees may need to take active steps to seek to commence secondary insolvency proceedings while it still has an establishment in the UK.
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