A group of electricity workers employed by collapsed construction firm Carillion could become a test case for pension protections.
Some 10,000 electricity workers were given pension guarantees in the 1980s when the electricity industry was privatised. These were introduced to ensure that their pensions would remain at least as good as they would have been, had they remained public sector employees.
Around 500 are thought to now be members of the Carillion pension scheme.
As part of this agreement, their employer cannot introduce any changes to the pension scheme that would reduce their benefits or force them to make greater contributions. Employees protected by these guarantees must also be left no worse off if the scheme is wound up.
Similar deals were put in place for members of the rail and transport industries.
Although the Pension Protection Fund (PPF) provides compensation when pension schemes collapse, only those who have reached the scheme’s retirement age will get 100% of their benefit protected. Existing employees and those that took early retirement get 90% cover, subject to a maximum cap linked to their age.
As a result, the workers’ union, Propsect, is calling on the secretary of state to ensure that these guarantees are honoured and says that the way the government manages the issue will set a precedent for how members of other schemes are treated going forward.
Mike Clancy, general secretary at Prospect says: “The statutory pension protections granted at privatisation of the electricity industry were crucial to the success of that endeavour.
Nathan Long, pensions expert at financial provider Hargreaves Lansdown, adds: "The provision for people working in the industry before it was privatised to be no worse off as a result of a successor scheme, such as the Carillion group of the Electricity Services Pension Scheme (ESPS), being wound up must now come into effect.
“Tens of thousands of protected persons in the electricity industry and other industries will be watching this situation closely to see that their colleagues in the Carillion group of the ESPS receive their benefits in full. As we have seen in the past, guarantees are only as valuable as the organisation that stands behind them.
"This test case promises to be interesting as it will cover whether a subset of employees can be treated differently to their colleagues. Given the length of time since privatisation, many of those impacted will already have passed their retirement date. Once this is the case, they have a strong position in the compensation scheme. Their income should not reduce if their benefits end up being paid from the Pension Protection Fund, although the pension will not increase as generously in payment. It may end up being the PPF that picks up the bill if it is decided these members are entitled to undiluted benefits, as paying them a higher pension could mean fewer scheme assets left over to pass across."