Legal threat on pensions snubbed

Workers marched to Downing St recently in protest

Work and Pensions Secretary Andrew Smith has snubbed a proposed legal action to make pension protection retrospective.

He was responding to the threat issued by the steelworkers union ISTC, who claim the government is ignoring part of the 1980 Insolvency Directive in its current pension protection plans.

Speaking to BBC Radio 4's Inside Money programme, Andrew Smith said: "To make things retrospective would be difficult and arguably in itself unfair."

And although he refused to speculate about future legal action, he told the programme: "I do not envisage that there are sound grounds for it."

Insurance payments

Andrew Smith said that a line had to be drawn somewhere

The argument has resulted from government plans to protect employees who pay into a company pension scheme.

Thousands of people have found their pensions at risk, and may lose them altogether, after the company they worked for went bust, and their scheme was wound up.

Recognising this as a serious and growing problem, the government announced the new measures to ensure future workers will not suffer the same fate.

Under the new rules, company schemes would have to pay insurance into the government's pension protection fund.

The current plan is for those who have not yet retired from the pension scheme to have 90% of their pension protected, but only up to a certain limit, which is yet to be set.

What we want is redress for all the thousands of workers that have been affected previously and we will do all in our power, however much it costs, to redress that

Michael Leahy, ISTC

Retired members' however, would have the full value of their pensions protected. But consultations continue, and the plans remain provisional.

Crucially, the government is not planning to compensate people retrospectively, so the new protection will not help the thousands who have already lost out.

Andrew Smith said that although he was sympathetic to the people that had suffered, "you have to draw a line somewhere".

He went on to say that he did not envisage backdating the protection "anymore than if you went out and bought an insurance policy for your car next week and then went to the insurers and said - well, there is this accident I had six months ago - you would expect to get cover for it".

However, the government may still find itself fighting a legal battle.

The EU Directive

Michael Leahy of the ISTC told the programme: "What we want is redress for all the thousands of workers that have been affected previously.

"And we will do all in our power, however much it costs, to redress that issue."

In theory you could bring a claim against the UK Government for failure to implement article 8

Lawyer Elmer Doonan

Lawyer Elmer Doonan of Denton Wilde Sapte has argued for years that both this government and previous administrations may not have correctly implemented this part of EU law and could therefore be vulnerable to legal action.

He told the programme that Article 8 of the 1980 Employment Insolvency Directive "requires member states such as the UK Government to ensure that there are necessary measures in place to protect employees in relation to their pension rights".

He said that it should have been implemented in 1983, but successive governments since appear to have done nothing about it.

And he continued: "In theory you could bring a claim against the UK Government for failure to implement Article 8.

"If that claim were successful, then you would be entitled to damages against the state for your loss of your pension rights."

BBC Radio 4's Inside Money was broadcast on Saturday, 2 August, and Monday, 4 August, 2003.