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UK trustees must engage with overseas parents

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  • UK trustees must engage with overseas parents

UK - British pension funds with sponsoring employers owned by an overseas parents need to engage directly with the latter on funding issues instead of relying on The Pensions Regulator (TPR) to bail them out, Lane Clark & Peacock (LCP) has warned.

The firm of consulting actuaries noted that figures from the UK's Office for National Statistics (ONS) show 40% of UK corporates are ultimately owned by overseas companies. Therefore, in the light of recent cases involving the Nortel and Reader's Digest UK pension schemes (See earlier IPE stories: Pension deficit forces Reader's Digest UK into administration and TPR pursues Nortel in Canada for £2.1bn pension fund bill), trustees should factor in the parent company when discussing funding issues.

James Atherton, partner at LCP, said: "How do trustees make sure they've got adequate support from the pension scheme's sponsor? Clearly, if the sponsor is owned by an overseas company that adds another layer of difficulty to the discussions, because some overseas companies don't fully understand the sheer complexities of UK pensions law.

"These companies don't understand how it works, don't understand why they're being asked these sort of questions, and they are often very reluctant to give any form of guarantee or legally binding support to UK pension plans."

Yet he suggested in the case of the Reader's Digest UK pension plan, which has entered the PPF assessment period, "if some form of support from the overseas parent had been in place then the fate of this pension scheme could have been a very different story". (See earlier IPE article: TPR urged to explain rejection of Reader's Digest deal)

In the case of Nortel, where TPR has filed a financial support direction (FSD) against the company despite it entering US and Canadian bankruptcy proceedings, Atherton suggested TPR might be testing its powers in overseas jurisdictions to see if it can actually enforce its powers. (See earlier IPE article: TPR appeals Nortel ruling over FSD 'misinterpretation')

"Everyone has pretty much agreed TPR can enforce its powers in the EU, but once you get outside the EU it's a lot more uncertain," Atherton added.

He pointed out TPR has issued very few FSDs, possibly because the way the legislation is drafted. "It means TPR has to jump through a lot of hoops, so it tends to use more roundabout, indirect methods to influence people."

Atherton added: "Although there have been a couple of high profile cases where TPR has used its powers to bail out pension schemes, trustees should not rely on it. Where necessary, Trustees therefore need to be engaging directly with the overseas parent company, and pushing really hard for direct support from it."

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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