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UK may not be liable for lost pensions - extended

The UK government may escape compensating thousands of retirees after Europe's highest court ruled it shouldn't be held fully liable for breaching a European Union law designed to protect workers' pensions.

More than 800 workers and their unions had challenged the UK over its failure to properly implement a 1980 EU directive obliging member countries to protect workers' pensions if their employer goes out of business. The European Court of Justice in Luxembourg said EU law „does not oblige” governments to take sole responsibility for funding pensions. Although the UK legislation is „incompatible with community law,” the EU pension-protection directive gives states „some latitude as to the means to be adopted for the purposes of that protection,” the court said in a statement today. At stake in the case is billions of pounds claimed by workers who lost all or part of their pensions when their companies went bankrupt, said Nicholas Heaton, a partner at the London-based Lovells law firm. Today's decision departs from an advisory court opinion last year saying EU countries had to provide „full protection” for workers' pension, which led to concerns the UK would need to reassess its entire system. „Such concerns have now probably gone away,” Heaton said.

The government is unlikely to be forced to review the level of compensation paid under its Pension Protection Fund, which was set up in 2005, he said. Amicus and Community, the British unions bringing the case said the decision was a clear win for them, vindicating their decision to take it to the highest EU court. „This case demonstrates that successive governments have failed workers who have heeded their advice to save for their retirement,” Derek Simpson, general secretary of Amicus, said in a statement. The government can only be held liable to repay lost pensions if a breach is found to be „manifest and serious,” the EU judges said, referring the case back to a British court. A finding by an English court that the UK will have to repay the workers seems unlikely, Heaton said.

The EU judges said the national court will have to consider the wide discretion the pension directive gives member states, he said. The news, while a victory for the UK government, was „grim” for workers hurt by past insolvencies, said Giannis Waymouth, a lawyer with London-based law firm Allen & Overy LLP. „Wild claims of 2000% increases in the levy paid by pension schemes to the Pensions Protection Fund would appear to be unfounded,” Waymouth said. Liz Forster, a spokeswoman for the UK department for work and pensions, said in an e-mail that while the government has „every sympathy for those who have lost their pensions,” the court had issued a commonsense judgment. „We note that the court appears to have given a steer that damages may not be payable, but this is now a matter for the High Court to decide,” she said. Amicus said it hoped the government will reconsider its position. „We believe that today's ruling demonstrates they have a moral obligation to reimburse the many thousands of people who, through no fault of their own, have lost all or substantial parts of their pension savings,” Simpson said. The European Commission welcomed the decision. „It very much confirms what the commission has said and what is also in line with the directive,” Katharina von Schnurbein, a spokeswoman for the European Commission, told reporters in Brussels.

The UK in 2005 put two pension protection systems in place. The Financial Assistance Scheme, which is funded by the government, helps workers whose employers went bankrupt under the old system and before the UK's Pension Protection Fund was set up. Concerns were that the ruling could have raised levies for companies paying into the Pension Protection Fund. The fund is designed to pay pensioners as much as 90% of their expected pension, capped at £26,000 ($51,200) a year, if their company becomes insolvent. Rulings by the EU court apply to the 27-nation bloc, including Ireland and the Netherlands, which intervened in support of the UK in the case. (Bloomberg)