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UK - Northern Rock is launching a new pension plan for existing active members which offers the same benefits and terms as an existing £367.5m (€408.6m) defined benefit pension plan but then leaves past liabilities with the division known as the ‘bad bank’.

Northern Rock was split into two separate companies on 1 January 2010, to create Northern Rock (Asset Management) - a renamed continuation of the previous ‘bad bank’ which holds and services the majority of the previous residential mortgage book, valued at around £50bn, alongside all unsecured loan accounts.

The restructuring also led to the formation of Northern Rock Plc - a new savings and mortgage bank “that will hold and service all customer savings accounts, (approximately £19bn) and approximately £10bn of mortgages”.

Media reports had suggested the bank had deliberately placed the pension scheme - that is believed to have an actuarial deficit of around £60m in 2009 - under the auspices of the asset management or ‘bad bank’ arm in an attempt to make the new bank more attractive to buyers.

Northern Rock denied it had deliberately ‘moved’ the pension scheme. However, officials confirmed that the current DB scheme valued at £367.5m at the end of 2008, “remains with the company it started with” - now known as Northern Rock (Asset Management) - as a closed scheme with the accrued benefits now frozen.

Officials claimed all staff contracts have been transferred to the new Northern Rock bank, so it has established a separate pension scheme for existing DB members to accrue future benefits.

A spokeswoman stressed that the new scheme is an “exact replacement offering the same benefits” to members. The company also said all employees would shortly receive a letter regarding their pension payments and the changes that have been made.

Figures for the bank in the six months to 30 June 2009 - before the split - showed the pension scheme now held by the asset management firm recorded a surplus of around £8.4m on an IAS 19 accounting basis. This differs, however, from the £60m revised surplus noted by trustees of the pension fund in June 2009 ahead of the finalisation of the April 2009 actuarial valuation. (See earlier IPE article: Northern Rock deficit revised to £60m)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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