PSV v Bauer (Judgment of the CJEU – 19 December 2019)


This reference from the German Federal labour court required the CJEU, once again, to consider the scope and interpretation of Article 8 of Directive 2008/94/EC (protection of employees’ pension rights in the event of their employer’s insolvency).

The CJEU concluded that, in some cases, the current minimum level of protection (of at least 50% of acquired pension benefits) will not be sufficient. This follows on from the Advocate General’s (“the AG”) opinion calling into question the interpretation of Article 8.

Facts

In December 2000, Mr Bauer was granted several occupational old-age pension benefits by his former employer:

  • a pension paid through a supplementary occupational pension institution (PKDW)
  • a monthly pension supplement paid directly by his former employer, and
  • an annual Christmas bonus, also paid by his former employer.

In 2003, PKDW experienced financial difficulties and was authorised by the relevant national authorities to reduce the amount of the pensions paid.  In total, between 2003 and 2013, the amount of the supplementary pension Mr Bauer received was reduced by 13.8%, representing a loss of EUR 82.74 per month (although, according to the German government, compared to the total occupational pension, the percentage of reduction of the benefits was only 7.4%).

Under German law, Mr Bauer’s former employer was then obliged to offset this reduction in his benefits (“the Offset”).  However, on 30 January 2012, Mr Bauer’s former employer entered insolvency proceedings.

PSV (an insolvency insurance institution for occupational pensions) informed Mr Bauer that it would assume responsibility for the payment of the monthly pension supplement and the Christmas bonus, but not the Offset in relation to the reduced pension being paid by PKDW.  Mr Bauer disputed this refusal on the grounds that PSV was obliged to make good any shortfall arising from the insolvency of his former employer.

The national court referred several questions to the CJEU.

Material Issues

Of the questions referred, two were of particular interest for UK DB occupational pension schemes owing to their potential impact on PPF compensation and, as a consequence, the PPF levy:

  • does Article 8 apply to the Offset?
  • if it does, in what circumstances would a loss of pension benefits (due to an employer’s insolvency) be regarded as “manifestly disproportionate” and therefore oblige the Member States to ensure a minimum degree of protection against such losses, even though the former employee receives at least half of his acquired pension rights?

AG’s Opinion

In his opinion, the AG called into question the current interpretation of Article 8, ie that it requires Member States to guarantee each individual employee compensation corresponding to at least 50% of the value of their accrued entitlement under their occupational pension scheme (see Hampshire v the PPF).

The AG’s re-examination of the CJEU’s case law to date led him to conclude that there was no basis for the CJEU to have decided (in Robins) that Member States are only obliged to ensure that at least 50% of acquired pension benefits are protected.  In his view, and agreeing with the AG’s opinion in Robins, the obligation under Article 8 is to protect “all of the old-age benefits affected by an employer’s insolvency and not just part or a designated percentage of these benefits”.

Furthermore, the AG commented that making provision for a private pension is “as critical a financial decision” for many employees as buying a house or providing for their children’s education etc.  As such, “even the partial loss” of a pension entitlement by reason of an employer’s insolvency is a “grave and serious matter for the employee concerned”. The AG therefore believed that the CJEU should take greater account of the proportionality of the loss suffered.

CJEU

While the CJEU generally follows the AG, it is not bound to do so.

On the first question, the CJEU agreed that Article 8 applied to the Offset.

In relation to the second question, the CJEU found that the Directive could not be interpreted as requiring a full guarantee of pension rights, as “Member States have considerable latitude in determining both the means and the level of protection”. Consequently, Article 8 does not preclude Member States, “in the pursuit of legitimate social and economic objectives, from reducing the accrued entitlement of employees in the event of their employer’s insolvency, provided they have due regard for […] the principle of proportionality”.

Nonetheless, the CJEU agreed that Member States are obliged to ensure a minimum degree of protection, which it noted the courts had already held is “at least half”. In certain circumstances, however, the loss suffered by an employee or former employee may be regarded as being “manifestly disproportionate”. This is because the Directive’s objective is to “offer protection in circumstances which represent a threat to the livelihood of an employee and his or her family” and, in particular, “hardship caused by the loss” of pension rights.

Given the above, the CJEU concluded that a reduction in pension benefits on account of an employer insolvency is regarded as being manifestly disproportionate (even though the former employee receives at least half of the amount of the benefits arising from his or her acquired rights) “where, as a result of the reduction, the former employee is already living, or would have to live, below the at-risk-of-poverty threshold determined by Eurostat for the Member State concerned”.

Finally, as the provisions of the Directive are “unconditional and sufficiently precise”, the CJEU held that Article 8 is capable of having direct effect.

Comment

The PPF has said that it is in discussions with the DWP as to the effect of the judgment. How, and if (particularly given the uncertainties posed by Brexit), they will assess whether the “at-risk-of-poverty threshold” is met in any given case remains to be seen.

For now, the PPF has confirmed that it considers the implementation methodology it announced following the Hampshire case, to ensure that all members receive at least 50% of the value of their accrued benefits, meets the CJEU’s minimum requirement.