UK - Trustees of the Northern Rock Pension Scheme have revised the estimated deficit in the plan down from £100m to £60m (€71m) following a provisional funding agreement with the government, subject to review later in the year.
Negotiations to develop a recovery plan to reduce the deficit in the scheme have been ongoing since September 2008, following the redundancy programme at the firm, with a provisional agreement achieved in October.
However, the terms of the recovery plan needed to be signed off by HM Treasury, and because of the recent economic circumstances the government was only able to re-examine the issue in March 2009, at which point it claimed a formal funding plan should wait until Northern Rock's revised business plan is finalised.
This is expected to happen over the summer, during which time the triennial actuarial valuation of the pension scheme at 5 April 2009 will be completed.
In the meantime, Sir David Chapman, chairman of the trustees, has confirmed in a letter to scheme members that annual contributions from Northern Rock of £9m a year, as scheduled under the terms of the provisional agreement, would go ahead and would be backdated to 1 January 2009.
The first payment was made by March 2009, and in addition the total contribution rate required for further accrual of final salary-related benefits increased from 27.1% to 36.3% - active members pay 5% of this - as of 1 January 2009, with the higher rate paid on a monthly basis until a "further review".
Under the provisional agreement, Northern Rock also agreed to pay additional annual cash payments to top up investment underperformance and pay rises in excess of inflation, which Chapman said allowed trustees to "amend the assumptions that had previously been used in arriving at a deficit figure of £100m, resulting in a revised deficit of £60m to be funded by way of a recovery plan".
However, the funding position of the scheme, which contrasts significantly with the £32m IAS19 surplus reported by Northern Rock in its accounts in March, and the details of the recovery plan will be "re-evaluated during August and September 2009 to reflect the impact of the company's new business strategy and the results of the new triennial actuarial valuation". (See earlier IPE article: Northern Rock records £31m accounting surplus)
If the resulting formal funding agreement and recovery plan require different deficit reduction amounts or contribution rates, then the payments already made under the interim arrangement will be taken into account.
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