28/09/2015
11 September 2015
How far should EU law protect members of
occupational pension schemes against
insolvencies of sponsoring employers?
James Kolaczkowski
PhD Candidate
University of Bristol Law School
[email protected]
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Outline of the paper
• Impact of Article 8 Directive 2008/94/EC in the
UK and Ireland
• Agency model in pensions
• 3 judicial decisions
• Other Member States
• Role of the EU in an agency model
• Guiding principles for EU and Member States
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An agency model in pensions
‘the agency relationship is one of the oldest
and commonest codified modes of social
interaction…..examples of agency are
universal’
(Ross 1973)
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An agency model in pensions
“a contract where one or more persons (the
principal(s) engage another person (the agent)
to perform some service on their behalf which
involves delegating some decision making
authority to the agent”.
(Jensen and Meckling 1976)
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An agency model in pensions
• The principal enacts the agent to do something on their
behalf
• There is a contractual arrangement delegating decision
making authority
• It is assumed that an agent will ‘shirk’ and pursue its own
interests
• It is assumed that the principal will engage in monitoring,
incentives or sanctions to address ‘shirking’
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Case C-278/05 Robins [2007]
• ASW Limited in voluntary liquidation on 24 April 2003
• 2 ‘final salary’ pension schemes with deficits of £99.7
million and £41.2 million
• Financial Assistance Scheme only provided 20% of
benefits to one of the members
• In 2004 only 13% of members helped by FAS were nonpensioners
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Case C-278/05 Robins [2007]
• Did Article 8 require the state to replace benefits in full?
• If not, was the level provided in accordance with Article
8?
• Was breach of Article 8 sufficiently serious to meet the
state liability test under Brasserie du Pecheur and
Factortame [1996] and the test in Hedley Lomas [1996]
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Case C-278/05 Robins [2007]
“Nevertheless, having regard to the express wish of the
Community legislature, it must be held that provision of
domestic law that may, in certain areas, lead to a guarantee of
benefits limited to 20% or 49% of the benefits to which an
employee was entitled, that is to say, less than half of that
entitlement, cannot be considered to fall within the definition of
the word ‘protect’ used in Article 8 of the Directive”
(paragraph 57)
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Case C-278/05 Robins [2007]
“…on account of the general nature of the wording of Article 8
of the Directive, that provision allows the Member States
considerable discretion for the purposes of determining the
level of protection of entitlement to benefits” (paragraph 74)
“…neither Article 8 of the Directive nor any other provision
therein contains anything that makes it possible to establish
with any precision the minimum level required in order to
protect entitlement to any benefits” (paragraph 80)
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1 - Impact of Article 8 in the UK and Ireland
Case C-398/11 Hogan [2013]
• Waterford Crystal enters receivership in Ireland - its two pension
schemes wind up on 31 March 2009
• Total deficit of EUR 110 million
• No statutory fund such as the PPF in the UK
• Statutory protection consisted of a right to the contributions
deducted in the 12 months preceding insolvency under Section 7
Protection of Employees (Employers’ Insolvency) Act 1984
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Case C-398/11 Hogan [2013]
• Is Article 8 applicable to former employees?
• Is it necessary to look beyond the fact that the scheme
is underfunded for Article 8 to apply?
• Can the economic situation of a Member State justify a
lower level of protection?
• Is providing under 50% of the pension automatically a
sufficiently serious breach?
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1 - Impact of Article 8 in the UK and Ireland
Case C-398/11 Hogan [2013]
“Nevertheless, Article 8 of Directive 2008/94 does not
distinguish between those possible causes, but lays down a
general obligation to protect the interests of employees and
leaves it to Member States to define, in accordance with
European Union law, in particular Directive 2003/41/EC…the
methods by which they fulfil that obligation”
(paragraph 38)
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Case C-398/11 Hogan [2013]
“the Court….acknowledged that the Member States have considerable
latitude in determining both the means and the level of protection of rights
to old-age benefits under supplementary occupational pension
schemes….The Court held however that provisions of domestic law that
may lead to a guarantee of benefits under a supplementary occupational
pension scheme that may lead to less than half of the benefits to which an
employee was entitled does not fall within the definition of ‘protect’ used in
Article 8…”
(paragraphs 42-43)
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Holden Hampshire v Board of the PPF [2015]
•
•
•
•
Claim against the Pension Protection Fund
Challenging the valuation procedure
Dismissed by the English High Court
Consideration of Robins [2007] and Hogan
[2013]
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PPF compensation
Category of member as at assessment Level of benefit
date
Pensioner members
Full unreduced pension
Indexation at PPF levels
Capped benefit
Members under NPA who are receiving an
early pension
90% of benefit
Indexation at PPF level
Members under NPA who have not yet retired
Capped benefit
90% of benefit
Indexation at PPF level
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Holden Hampshire v Board of the PPF [2015]
“…it is clear in my view that the court was considering the UK legislative
scheme as one that might affect substantial numbers of ordinary members
as severely as the two particular claimants in question. It is not, in my view,
to be read as a decision that a national scheme must be non-compliant
with the Directive merely because it can be shown that two individual
members of one scheme would still suffer losses of this extent, whatever
their circumstances and whatever might be the reasons why they were not
given greater protection. Nor in my view is it likely that the Court intended
by its decision to lay down a rule that provision of security for 50% of
contractual benefits would be sufficient compliance with the directive….”
(paragraph 17)
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Holden Hampshire v Board of the PPF [2015]
In Hogan and Robins the CJEU was considering a “general category” of
members and was not “considering a case in which the state had
deliberately made a targeted provision between different categories of
member for particular reasons” (paragraphs 28 and 29)
“The Court in Robins mentioned the requirement only in the context of its
conclusion that the state was not obliged to guarantee full protection of
benefits, and not as a basis for any conclusion that a minimum at any
particular level was required.” (paragraph 44)
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Holden Hampshire v Board of the PPF [2015]
“It is in no doubt possible that if the matter came again before
that Court [CJEU] it would find that the PPF scheme was not
compliant with the Directive, and even possible that it might
hold that the Directive had the effect that Mr Hampshire now
contends for.”
(paragraph 40)
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2 – Other Member States
Implications for the role of the EU
Netherlands
• DB and DC provision
• Funding requirements
• Separate legal entity governing the pension fund
• Employee Insurance Agency (Uitvoeringsinstituut
Werknemersverzekeringen or UWV)
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2 – Other Member States
Implications for the role of the EU
France
• Compulsory occupational schemes
• Pay as you go basis
• Association pour la gestion du regime d’assurance
des creances des salaries or AGS
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2 – Other Member States
Implications for the role of the EU
Spain
• Relatively small number of employer run
schemes
• Externalisation of pension liabilities
• High level of state benefits
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3 – The role of the EU
A fiduciary - agent
• CJEU is a “trustee court par excellence”
(Stone Sweet 2011)
• “full delegation and the transfer of political property
rights”
(Majone 2001)
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3 – The role of the EU: A fiduciary – agent
Council
Commission
European Parliament
CJEU
National Parliament
National Courts
Employer / trustees
Scheme members
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Conclusions
•
•
•
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EU has an important role to play
Promote fairness and protect scheme members
Detail of implementation at national level
Corresponding obligations within an agency
model of pensions for other stakeholders such as
Member State governments and national courts
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