PPF loophole leaves savers exposed

A legal loophole could threaten PPF payouts in the event of company insolvencies, warns Ros Altmann.

The director-general of Saga says a discrepancy over the definition of ‘employer' could put savers' funds at risk.

She highlights the recent case of the George & Harding Group (G&H) pension scheme whose members may lose their savings as its parent company Zejwa is unable to pay them and the PPF lifeboat fund will not cover the losses.

Altmann says there is a difference between a ‘sponsoring employer' and a ‘principle employer' in pensions law, which means the G&H pension is not eligible for help the company which collapsed due to the recession.

The G&H pension scheme was taken-over by parent company Zejwa in 2002, after the scheme closed to new members and whilst existing members were no longer accruing benefits.

This meant Zejwa was a sponsoring employer whilst G&H, which had paid the levies, is the principal employer, meaning it does not qualify for PPF help.

Altmann says the PPF has only offered to repay the levies the company has paid over the years, which she claims is ‘trying to wash its hands of the situation'.

The scheme has 40 members and a £1m deficit and has been paying PPF levies since 2002.

If the PPF will not cover the scheme, the trustees will have to buy-out the PPF level benefits with annuities, and reduce members' pensions pro rata to reflect the fact there is not enough money left to pay the original final salary pensions agreed.

Many pensioners who are part of the scheme, Altmann says, have already been drawing their pensions, and will see a sudden drop in their payments, whilst those who have not yet retired will lose more than half their pensions.

"This loophole in the law should never have existed and I am calling on the government to urgently introduce legislation to ensure that this scheme and all others in a similar position are covered by the PPF in future," Altmann says.

"A sponsoring employer and a principal employer should be the same thing.

"This company has taken on responsibility for the pension scheme and paid contributions and levies in good faith to the PPF."

Altmann warns many employers with pension schemes for staff could be affected by the loophole.

The PPF was unavailable for comment as its offices are closed due to the bad weather.