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Derivatives market: ECJ gives final verdict on pensions judgment

Ruling on compensation to pension scheme members for failure or underfunding will have implications for regulation and bond markets across the EU, starting with the UK, writes Roger James.

A version of this article first appeared in Total Derivatives.

Total Derivatives is the prime source of real-time news and analysis of the global fixed income derivatives markets.

In late January, the European Court of Justice issued its clarification of member states’ responsibilities for failed or underfunded pension funds (go to for full details of the judgment). It seems certain that the conclusion was not the extreme one that the UK government dreaded but ultimately didn’t expect. Reactions range from panic to relief. At the panic-stricken end of the reaction scale is Colin Mouque, a director at Alexander Forbes Financial Services, who told that "this could be a terrible blow for the Pension Protection Fund (PPF). If the High Court orders full compensation, the PPF will be bust within two years."

Cruel fate

Given that the UK’s PPF only became operational on April 6 2005, that would seem too cruel a fate. A grave, but somewhat more hopeful, tone was struck by Tim Keogh, of consultancy group Mercer. He says: "The European Court’s ruling indicates that a compensation system does not have to provide 100% cover for pension losses following employer insolvency, but protecting less than 50% of benefits is not good enough.

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