UK – The Pension Protection Fund could be facing a huge financial hit if the trustees of the struggling Turner & Newall scheme decide on a delayed wind-up in the light of new government guidance, a leading pension analyst has said.
Independent consultant John Ralfe, who has written a research note for RBC Capital Markets, told IPE that the trustees may now feel it is their duty to consider a delayed wind-up. This follows comments by pensions minister Malcolm Wicks last week that are being interpreted as making the PPF retrospective.
Wicks told parliament that “eligible schemes, whose sponsoring employer has already entered insolvency proceedings may still be able to receive PPF compensation”.
Schemes would still have to satisfy other PPF eligibility criteria, with the sponsoring employer needing to have an insolvency event after the introduction of the PPF and the pension scheme must not have commenced wind up prior to that date.
“Since T&N’s PPF shortfall is around 500 million pounds, will it open its doors in 2005 with a deficit of at least this size, to be paid for by other companies,” Ralfe writes.
Ralfe, well-known as the corporate finance chief who took the Boots scheme into bonds - said this would be “moral hazard in a clearly focused way – and the numbers are huge”.
Last month the government added moral hazard clauses to the Pensions Bill in a bid to avoid such “liability dumping”.
Wicks told Parliament yesterday in a debate on the Bill: “We are confident that the moral hazard clauses strike the right balance on protecting members, the PPF, levy payers and business interests.”
The T&N scheme is 875 million pounds in deficit and has become a key element in a takeover bid for parent firm Federal Mogul by US financier Carl Icahn.
A spokesman for the trustees of the T&N Retirement Benefit Scheme would not be drawn on whether the trustees were considering wind-up. Earlier this week the trustees said they would not vote in favour of a contribution plan put forward by Icahn.
The trustees are being advised by consulting firm Mercer, who declined to comment. Earlier this year the firm warned that the PPF would “reduce the incentive for weaker employers with underfunded schemes to restore the scheme’s funding position, as they could rely on generous compensation from the PPF to bail out their members”.
The Pension Protection Fund was not immediately available for comment.
Meanwhile, the UK’s Parliamentary Ombudsman has said it plans to investigate complaints about occupational pensions. The probe will focus on the actions of four government bodies - the Department for Work and Pensions, the Occupational Pensions Regulatory Authority, HM Treasury and the National Insurance Contributions Office.