Travel company’s £1.4bn scheme heads for PPF assessment [updated]
Thomas Cook’s £1.4bn (€1.6bn) UK defined benefit (DB) pension scheme has entered the assessment period for the country’s pension lifeboat fund after the travel company collapsed this morning.
Thomas Cook entered compulsory liquidation this morning after talks over the weekend with banks and stakeholders fell through. Consultancy firm AlixPartners was expected to be appointed to oversee the bankruptcy process, according to a statement on the travel company’s website.
A spokesperson for the Pension Protection Fund (PPF), which takes on the DB schemes of bankrupt UK companies, said the Thomas Cook scheme’s four sections were all believed to be “marginally overfunded” on the main basis used by the lifeboat fund.
In addition, a spokesperson for the Thomas Cook Pension Plan trustee board said the scheme had an estimated £100m surplus, with the trustees “hopeful” that a solution outside of the PPF could be found (see full statement below).
This could mean the schemes are able to secure full benefits through an insurance deal. The PPF will assess the scheme’s data and investments over the next 18-24 months, as well as engaging with the administrators of Thomas Cook to secure more money through recoveries, before a decision is made on the final destination of the scheme.
Should the pension fund not be able to secure an insurance deal, it would enter the PPF, limiting some benefit payments for people who have not yet retired to 90% of what was initially promised. Annual increases are also limited by the PPF.
According to Thomas Cook’s most recent annual report, its UK scheme had assets of £1,406m and liabilities of £1,122m as of 30 September 2018. In an interim results statement from 31 March 2019, this surplus had fallen slightly.
Thomas Cook Pension Plan trustees – statement
“Over recent weeks the trustees of the Thomas Cook Pension Plan have been engaged in discussions with the management and other stakeholders of Thomas Cook Group to try to support the recapitalisation of the company. Sadly, events beyond the control of the trustees have led to the company going into liquidation.
“The trustees remain focused on protecting the accrued benefits of the members of the Thomas Cook Pension Plan and are in continual dialogue with a number of parties including the Pension Protection Fund and the Pensions Regulator to agree next steps.
“It is estimated that the aggregate assets of the various UK DB schemes are approximately £100m more than are currently expected to be required to secure PPF benefits within the PPF (Section 179 basis). The trustees therefore are hopeful that the PPF lifeboat will, once the assessment period has ended, not be called on and benefits in excess of PPF levels will be provided from outside the PPF.
“The trustees will continue to be in regular contact with the members of the scheme to keep them appraised of the situation and to provide further information as it becomes available.”
Thomas Cook also sponsors a pension plan in Germany, which had liabilities of roughly £365m as of 30 September 2018. Most of this amount is linked to Thomas Cook subsidiary Condor, which is in talks with the German government regarding a loan to keep operating, according to Reuters.
The company also has smaller plans in the Netherlands, Sweden, Switzerland, Belgium and France, according to its annual report.
Rosalind Connor, partner at ARC Pensions Law, said the trustees of the Thomas Cook UK schemes had been seeking to extend contributions from the employer despite the funding surplus.
“This is because there is a growing tendency for schemes (encouraged by the Pensions Regulator) to have a long term funding target,” she said, “ie, even if the scheme is in surplus now, to look to the future where the scheme can be bought out or at least not be dependent on the strength of the employer. In the light of events this morning, that would seem to have been wise.
“The pension scheme would be a creditor and now the companies have filed for administration, all the powers of the trustees to negotiate with the administrator are in the hands of the PPF – even though, if the scheme is well funded, it may not go into the PPF in the end anyway.”
The PPF was 118.6% funded as of 31 March 2019, with assets of £32bn.
This article was updated on 23 September 2019 to add the trustee board’s statement.