UK - Transport for London (TfL) is seeking a judicial review against the Pension Protection Fund (PPF) over an "unreasonable" levy of £9m (€10m) relating to the pension funds of the failed infrastructure provider Metronet.
The organisation, which is responsible for London's transport network, claimed the PPF had given the former Metronet sections of the TfL pension fund the lowest possible stability rating - meaning a higher levy - despite TfL signing a binding 'Deed of Assumption and Responsibility' to take on the pension obligations in September 2007, with the consent of the PPF.
TfL will argue that because it signed this deed, stopping the funds from falling into the PPF, it should receive the same stability ranking as the rest of the TfL pension scheme, which it says has the 'highest possible' rating.
If this were to happen, it claims, the PPF levy would fall from £9m to £252,000 for the years 2008-09 and 2009-10.
TfL claims it has directly contacted both the PPF and Dunn & Bradstreet (D&B) - which provides credit ratings for the PPF - to ask for the ratings to be changed, but with no success.
It has now exhausted D&B's five-stage appeal process, and says the company only takes into account that the former Metronet companies are insolvent. And it said the PPF had stated the levy calculations must be strictly applied and cannot take into account outside factors such as the scheme rescue package.
In response to suggestions that it could have avoided the issue by putting in place a 'Type A contingent asset', TfL claimed this is a "prescribed and narrow form of guarantee" between a parent company and a subsidiary. But because the Metronet companies were never subsidiaries of TfL it could not adopt this route.
TfL says it issued a 'pre action protocol letter' to the PPF informing it of the plan to launch a judicial review in September, with the application to the High Court filed on 1 October. The PPF has since filed an acknowledgement of the review contesting TfL's claims on 23 October.
Richard Parry, managing director of London Underground, said the levy was unfair and unjust. "We have made clear to the PPF on several occasions that TfL had underwritten the pension obligations of the Metronet sections of the TfL Pension Fund. Given that the PPF has top-scored the stability of TfL, we cannot understand why they have chosen to confirm the lowest possible score in respect of the Metronet sections and sought to impose a £9m levy on the fund."
The last formal actuarial valuation of the Metronet SSL and Metronet BCV pension schemes in March 2006 revealed deficits of £24.6m and £21.9m respectively. Metronet had agreed a funding plan of contributions of £4m to the BCV plan and £4.5m to the SSL plan each year for seven years starting in April 2007.
Following the collapse of the company in July 2007, and TfL's subsequent acquisition of the Metronet assets in May 2008, TfL "made lump sum payments to the fund of £22.3m in respect of SSL and £20.1m for BCV in lieu of the remaining deficit payments".
A spokesman for the PPF said it does not comment on individual cases, but confirmed the organisation is aware of the judicial review and will "take part in the legal proceedings as and when they occur".
Nick Griggs, partner at Barnett Waddingham, added: "If TFL are successful with their appeal then a number of similar appeals can be expected as this could represent a significant change in the rules governing the calculation of the levy."
He admitted a number of Barnett Waddingham's clients do not believe the D&B failure score correctly reflects the risk they pose to the PPF, but highlighted "the rules governing the calculation of the PPF levy and the D&B failure score are precisely defined and most clients have worked within these to mitigate the levy as far as possible".
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