A landmark European court ruling this week on pension bailout funds’ obligations could cost the UK £160bn and force the winding-up of Britain’s pensions lifeboat, a senior City financier has warned.

Edmund Truell, the founder of the Pension SuperFund and former chairman of the London Pension Fund Authority, has told Sky News that the European Court of Justice’s (ECJ) judgment could be “catastrophic to the wider UK economy”.

He claimed that it could also trigger the closure of every one of the UK’s remaining defined benefit pension schemes.

Thursday’s ruling by the ECJ centres on a case brought by Gunther Bauer, a former employee at a now-insolvent German company, in which he claims that, under European law, pension bailout funds have no right to reduce retirement benefits.

The UK’s bailout scheme, the Pension Protection Fund (PPF), covers the majority of DB schemes’ liabilities when their sponsors go bust – most notably in cases like that of BHS, which collapsed in 2016, sparking a furious row over the role of Sir Philip Green, the chain’s former owner.

Mr Truell warned that an adverse ruling from the ECJ could – if it meant that the PPF needed to be funded on a fully insured buyout basis and was applied retrospectively – render the PPF insolvent.

The PPF and The Pensions Regulator, both of which said they were awaiting the ruling and declined to comment further, are understood to have been making contingency plans for a range of outcomes from the ECJ judgement.

Mr Truell, a long-standing Eurosceptic and Brexit supporter, argued that the Bauer case offered “a flagrant example of how the UK can be severely damaged by continuing subjection to EU jurisdiction”.

“The UK should be able to govern its domestic pension industry without ECJ interference,” he said.

Mr Truell and a number of industry peers are awaiting formal confirmation from TPR that will enable them to accelerate the growth of new pension consolidation vehicles called “superfunds”.

Investors in the sector have become frustrated at what they perceive to be a lack of impetus from regulators in paving the way for innovation in retirement fund consolidation even as concern mounts about employers’ ability to fulfil their future obligations.

The worst-case outcome from the Bauer judgment for corporate Britain could lead to pension fund sponsors seeking to offload their schemes to insurance specialists in ever-greater numbers.

That would not, however, address the issue of how the PPF would be funded, according to industry experts.

As an alternative, the government could be required to step in to enforce a new pension scheme levy or substantially increase the rate of the PPF levy.

“The Pension SuperFund expects [in that scenario] to see the closure of the £1.3trn of UK pension schemes still accruing benefits, in order to limit building up yet more exposure to DB pension liabilities,” Mr Truell said.

“Fund sponsors would look to offload pensions to avoid the inevitably much higher PPF levies.

“Where employers are in trouble, the PPF will have to aim to recover full section 75 pension debt [the most draconian calculation] and so many companies will be forced into bankruptcy.”

The prospective application of the ECJ ruling to the UK, with Britain’s departure from the EU scheduled to take place in just over six weeks, is likely to trigger protests from other pro-Brexit financiers.

Mr Truell, who was a founding shareholder in the pension risk transfer specialist Pension Insurance Corporation, added that the PPF would face being wound up in the most extreme interpretation of the Bauer judgment.

“Since the PPF is a statutory company, it could only be wound up by an act of parliament, which would necessitate a government guarantee of funding,” he said.

“Our parliament has carefully established a pension protection system to work specifically for the UK market, thereby avoiding the detrimental effect an overarching ECJ ruling would have when our specific laws and structures are not properly taken into account.”

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