Version 1.2 5-Feb-2009
This note is intended to
provide a concise overview of what has happened to the Nortel DB Plan as a
result of Nortel Networks UK (NNUK) going into administration, the role of the
Trustees and what outcomes may be possible.
It is only an informal overview, it does not cover all the details or
options, override the fuller explanations given elsewhere or provide any
definitive guidance - for those please look at the Nortel Pensions
UK Q&A documents or the various government websites referenced therein.
As a consequence of NNUK entering administration on 14th Jan
2009 the administrators (Ernst and Young) contacted the UK Pension
Protection Fund (PPF) as they are required to do by law. This set in train a
process for the PFF to put the Plan into "PPF Assessment" -
this has two stages, an initial 28 day review of the Plan rules etc. (which
should finish by mid to late February 2009), followed by a much longer process of
Assessment of the Plan's assets, liabilities and membership. This latter
process can take up to two years (or longer) and will result in the PPF
deciding whether it needs to take on the Plan or whether there are sufficient
assets for the Trustees to be able to secure equivalent or greater than PPF
benefits through a 'buy out' with an insurance company.
The Trustees will be writing formally to all members in March 2009 (after
the initial review has completed) to provide more details of what has happened
and the status of their pensions.
Another consequence is that any further regular contributions by employees or
company, and further pension accrual cease as of 13th Jan. The Plan
essentially becomes closed and all former contributing members become deferred
members. (Contributions to any AVCs linked to the fund i.e. "Winterthur life" also cease).
Because the Plan is entering a PPF Assessment process the Trustees are required
by law to operate the Plan under PPF rules immediately. Pension payments
are still made, but there are strict limits on the pensions payable, benefits
applicable, indexation of deferred pensions and a number of other areas.
Some important Plan benefits are reduced or no longer in place - in
particular lump sum "Death in Service" benefit for active and
deferred members are not provided under PPF rules. The Q&A should be
reviewed for more details on this and other benefit changes.
Another consequence is that the Plan and the PPF become creditors of NNUK
with a right and a duty to recover as much money as possible to address the
deficit. It is expected that the Plan will be the largest creditor of
NNUK and also will have some separate claims on the Canadian or North
American companies.
The Trustees of the Plan have a general duty to act in the
interests of all members - (that is approximately 22,000 deferred, 20,000
pensioners or beneficiaries and 1000 current employees). In particular they
will be acting on behalf of the members to get the best settlement possible for
the Plan during the administration and Assessment process.
The Trustees presently comprise
The duty to act for the members applies to all Trustees
regardless of whether they are member nominated, independent or employer
nominated. If it considered that they have a conflict of interest it must
be declared and considered by the other Trustees who will then decide how it
should be handled.
In normal circumstances the Trustees would act simply according to the plan
rules and legislation, but the PPF assessment process imposes an additional
requirement to act within the PPF framework (which is quite restrictive), so in
most respects they have little freedom to exercise any discretion.
The pension regulator has oversight of the whole process, but would normally expect the PPF and Trustees to be doing the main work of securing as many assets as possible for the scheme. In rare circumstances he can decide to intervene in certain ways to supplement this process, but normally will expect the PPF to be driving the process.
It is far too early to say what the outcome of this whole
process will be, but the Trustees expect the Plan to enter the long
Assessment process. During that time it will become clear whether the
deficit is so great that the PPF must take on the Plan, or whether sufficient
assets can be realised to allow an insurance company to take on the Plan and
provide equivalent or improved benefits. But even if this latter option
is possible, the basic benefits and degree of their improvement is still
determined by PPF rules.
Whatever the outcome the benefits for most members are likely to be less than
they would have received had Nortel not gone into administration and the Plan
not gone to the PPF. But for many members the underpin of the PPF and the
changes to pension law in 2004 means that they are much better protected
in these circumstances than had formerly been the case.
The Trustees are working very hard to explore all options and maximise the
benefits for members within the framework of current legislation.