EU Court Rules on Pension Compensation in Insolvency

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The European Union’s (EU) court of justice has ruled that member states don’t have to fully guarantee lost pension rights when an individual’s employer becomes insolvent and cannot pay pensions. The ruling clarifies provisions of a long-standing EU directive on the protection of employees in the event of their employer’s insolvency. It further directs that individuals should be entitled to a minimum of 50% of their accrued benefits, but this loss shouldn’t put them at risk of having to live below the “at risk of poverty” threshold — which is approximately 60% of the median disposable income.

The ruling could impact the amount of pension protection provided by member states, particularly the “necessary measures” for protecting members from pension shortfalls. The full implications of the ruling are yet to be assessed, but likely will increase the administration required to assess members’ circumstances and could impact the amount of levies paid by employers to national insolvency insurance institutions. Eurostat — the EU’s statistical agency — determines the “at risk of poverty” threshold applicable to each member state.

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Fiona Webster
by Fiona Webster

Principal, Mercer’s Law & Policy Group

Stephanie Rosseau
by Stephanie Rosseau

Principal, Mercer’s Law & Policy Group

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