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UK Regulator to demand US firm finances pensions

UK - The Pensions Regulator (TPR) is set to issue its first Financial Support Direction (FSD) and order US company Sea Containers to shore up its UK pension funds.

The pensions regulatory body's Determinations Panel published two determination notices yesterday stating it will next month issue an FSD, requiring Bermuda-based Sea Containers Ltd (SCL) to provide financial support to the two pension schemes of its London-based subsidiary Sea Containers Services Ltd (SCSL).

At this stage, TPR has only announced it intends to issue the FSD in 28 days, enforceable immediately, and revealed in the determination notices the 1983 and 1990 SCSL pension funds have deficits of £73.6m and 17.5m respectively.

However, this is a significant step as it is the first time it has used its anti-avoidance powers against a parent company thought to be trying to avoid paying its pension.

Moreover, the FSD is enforceable immediately once the 28 days are up so SCL may have to contribute at least £91m (€135m) to the pension funds.

Trustees of the defined benefit pension schemes requested the regulator issue the FSD last year after Sea Containers filed for Chapter 11 bankruptcy protection in the US.

Warning notices were subsequently issued to SCL in October 2006 and April 2007 and TPR's Determinations Panel then met on June 12 and 13 to hear evidence from TPR, trustees of the two pension funds and SCL about the funding situation.

Under the terms of the Pensions Act 2004, pension fund trustees can approach the regulator and ask for an FSD to be issued to a "sufficiently resourced connected or associated party" such as a parent where the sponsoring employer is unable to meet its liabilities.

TPR chief executive Tony Hobman said it was necessary to give notice of the FSD on the parent group because SCSL is only a service company and therefore unable to finance the deficit.

"Our anti-avoidance powers are significant and, as we have always stressed, we will use them proportionately and where reasonable," said Hobman.

"In this case, we concluded that the issue of a Financial Support Direction as appropriate and justified," he added.

SCL could still appeal the decision but should the US passenger transport and marine container company - which owns UK rail operator GNER - decide not to comply TPR will then have to obtain a Section 47 Contribution Notice, placing a statutory debt on the company.

In a brief statement issued by the company, SCL said it is "disappointed" with the outcome of the Determinations Panel hearing and will decide whether an appeal is appropriate once the panel reveals its reasons on June 25.

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