Locations
James McConville looks at the recent CJEU judgment in the Waterford Crystal case.
On April 25 2013, the Court of Justice of the European Union (CJEU), in its judgment in Hogan and Others v the Minister for Social and Family Affairs[1] - commonly known as the Waterford Crystal case, handed Ireland its latest caning for failing to properly implement European Directives. On the face of it, this could be one of the more painful ones for the State.
Background
Back in 2007, i...
James McConville looks at the recent CJEU judgment in the Waterford Crystal case.
On April 25 2013, the Court of Justice of the European Union (CJEU), in its judgment in Hogan and Others v the Minister for Social and Family Affairs[1] - commonly known as the Waterford Crystal case, handed Ireland its latest caning for failing to properly implement European Directives. On the face of it, this could be one of the more painful ones for the State.
Background
Back in 2007, in the case of Robins v Secretary of State for Work and Pensions[2] the European Court of Justice (ECJ) responded to queries posed by the UK High Court in respect of Article 8 of Directive 80/987 (the 1980 Directive), which required Member States to provide additional statutory protection to employees in respect of their pension benefits, where their employer becomes insolvent and such benefits are not fully funded.
The ECJ held that, whilst a Member State was not required to cover any loss of pension benefits in full (and indeed, could raise the money by other means), a national court must consider whether the State had shown “a manifest and grave disregard” in its transposition of the 1980 Directive, by failing to take sufficient measures to ensure that a member had proper “social protection” as understood by Article 8.
In Robins’ own case, even with access to the UK’s then statutory Financial Assistance Scheme, he was only entitled to 20% of the value of his benefits. The ECJ ruled that a scheme which failed to cover at least 50% of the benefits of a member did not amount to proper “social protection” within the meaning of Article 8.
The 2008 Directive
In 2008, the 1980 Directive was replaced by Directive 2008/94/EC (the 2008 Directive), which took account of the judgment in Robins by stating, again at Article 8, that:
“Member States are to ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary occupational or inter-occupational pension schemes outside the national statutory social security schemes”.
The UK Government responded to the Robins judgment by establishing the Pension Protection Fund, which now covers up to 90% of the value of members’ benefits where both scheme and employer are insolvent.
By contrast, the Irish Government did nothing.
Waterford
The Waterford Crystal pension schemes were wound up on 31 March 2009. As was well documented at the time, the schemes’ deficits meant that it was likely that active or deferred members would receive less than half of the value of benefits promised to them.
Even before the schemes were wound up, the then Minister for Social and Family Affairs was making it absolutely clear that there would be no additional State assistance for insolvent Irish pension schemes[3]. However, within a year, the Government established the Pensions Insolvency Payment Scheme (PIPS), to provide a lower cost alternative to annuity purchase from insurance companies by permitting trustees to instead purchase annuities from National Treasury Management Agency backed investments, linked to secured government bonds.
By the time PIPS was launched, ten representative plaintiffs backed by the union UNITE had launched proceedings against the State, claiming that the Government’s failure to provide additional protection for their pension benefits amounted to a breach of Article 8 of the 2008 Directive.
Judgment of the CJEU
The High Court sought a preliminary ruling from the CJEU on a number of issues relating to the 2008 Directive.
In giving its judgment, the CJEU stated that:
- the 2008 Directive applies to former employees entitled to retirement benefits;
- the state pension is not to be taken into account when assessing the adequacy of a Member State’s compliance with Article 8 (a key argument of the Irish Government);
- to rely on Article 8, it is sufficient for beneficiaries to show that:
- the pension scheme is underfunded at the date of the employer's insolvency, and as a result of that insolvency, the employer cannot meet the scheme deficit in full;
- the measures adopted by Ireland since Robins (including PIPS) have not brought member’s benefits above the 50% threshold provided for in Robins therefore amount to a serious breach of the 2008 Directive; and
- Ireland’s economic state does not constitute an exceptional situation in which a lower protection for employees might be justified.