The Trustee Board
Nortel Networks
Issue 3A dated
January 28, 2009
Changes from previous issue:
Q29
amended – only relevant to current NNUK employees
The Trustee Board have put together this
Q&A for all members of the Nortel Networks
A number of questions have been
asked about the Pension Protection Fund (“PPF”) which was set up in 2005. Some of the answers below deal with the
operation and level of benefits of the PPF.
These answers are given in good faith and result from interpretation of
information published on the Pensions Regulator and PPF websites. Whilst every effort has been taken to ensure
accurate information is given it must be assumed to be for guidance only and
not a definitive statement of entitlement or the law.
Any member who is considering
drawing pension benefits from the Plan is strongly advised to seek professional
guidance and is reminded that neither the Trustee nor NNUK can provide advice
on your personal or financial circumstances.
To find an independent financial adviser go to www.unbiased.co.uk and type in your post
code. This will give you a list of IFAs in your area.
Q2. What does insolvency mean ?
Q3.
Is NNUK still contributing to the Plan following its filing for Administration ?
Q4.
Are active member (employee) contributions still being made to the Plan ?
Q5.
How safe are the Plan assets now that Nortel has filed for Administration
?
Q6.
Who is now responsible for the Plan ?
Q8.
What is the Pension Protection Fund ?
Q9.
What is the Assessment process ?
Q10.
What is mean by the Validation process ?
Q11.
What is meant by the Assessment period ?
Q12.
What happens during the Assessment period ?
Q13.
How long does the Assessment period last ?
Q14.
What is meant by the Transition process ?
Q15.
What is the role of the Trustee during the Assessment period
?
Q16.
What is the role of the PPF during the Assessment period ?
Q18.
What level of benefits does the PPF provide during the Assessment period ?
Q19. Will my pension still be paid on the same day
during the Assessment period ?
Q20.
Will I have to pay back any of the tax free cash I received when I retired ?
Q21.
Will I still receive an increase to my pension each year and will this take
place each April ?
Q24.
I am due to retire in two years time will I be restricted by the ‘Cap’ at
today’s rate ?
Q27.
Will I be able to start drawing pension/ take lump sum during the assessment period ?
Q29.
What happens to my life assurance or death benefits during the assessment process ?
Q30.
I retired for ill health reasons – is this affected in any way
?
Administration
A. This is a formal insolvency
procedure in which qualified insolvency practitioners (called “Administrators”)
are appointed to take control of a company and run it in accordance with certain
statutory objectives.
The primary objective of an Administration is
to rescue the company as a going concern.
If this cannot be achieved, then the objective is to achieve a better
result for the company's creditors as a whole than would be likely if the
company were wound up. An
Administration must be run in the interests of the company's creditors as a
whole (including the Plan).
The Administration procedure confers upon the
company a statutory moratorium under which creditors may not commence or
continue any enforcement action or other proceedings against the company or its
property without the consent of the Administrators or the permission of the
court. This effectively means that the company is protected from its creditors
for the duration of the Administration so that the statutory objectives may be
achieved.
In respect of certain guarantees in place
between the Trustee and NNUK's overseas parent
company Nortel Networks Limited (“NNL”), the Trustee is
taking the necessary legal steps to establish the Trustee as a creditor of NNL
in
Q2. What does insolvency mean
?
A. For the purposes of an Administration, a
company is "insolvent" if it is unable to pay its debts. A company will be deemed unable to pays its
debts if:
(1) it fails
(without any legal excuse) to pay its debts as they fall due ; and/or
(2) its liabilities
exceed its assets.
If a company is insolvent, then there will be
insufficient realisable assets to pay all of its
creditors in full.
Q3. Is NNUK still contributing to the Plan
following its filing for Administration ?
A. No. Once the PPF
has confirmed that there has been a qualifying insolvency event and that the
Plan is an eligible scheme, the Plan will enter an assessment period with
effect from the date of the filing for Administration (January 14, 2009) - see
Q8 onwards for more details. As a
result, from that date, all benefit accrual and contributions in relation to
the Plan have ceased.
Q4.
Are active member (employee) contributions still being made to the Plan ?
A. No. All benefit accrual and contributions in
relation to the Plan have ceased. In
addition, you are no longer contracted out of the State Second Pension (SSP)
and hence members’ National Insurance Contributions will increase to the full
rate. The status of an active member in the Plan is now that of a deferred
member.
Q5. How safe are the Plan assets now that
Nortel has filed for Administration ?
A. The
assets of the Plan are held completely separately from those of NNUK and NNL.
These assets are ring fenced to provide pension benefits to the members of the
Plan. They cannot be called upon by any creditors of NNL or its subsidiaries
under any circumstances.
Q6. Who is now responsible for the Plan ?
A. The day to day running of the Plan is still the responsibility of the
Trustee. As a result of the
Q7. I am an existing employee. Now that
NNUK is in Administration is it possible to do an exception and swap to the
GPPP for future benefits now rather than wait until July under flex ?
A. Yes, the
opportunity for any employee to join the GPP
plan for the future remains in place, on current terms as set out in Services
at Work. Please complete forms 4 and 6 at the
link below and return to HR Shared Services.
http://services.europe.nortel.com/Livelink/livelink.exe?func=ll&objId=26941&objAction=sawbrowse
Pension Protection Fund
Q8.
What is the Pension Protection Fund ?
A. The Pension Protection Fund was set up in April 2005 under the Pensions
Act 2004 to protect employees in a final salary pension scheme if their
employer becomes insolvent and enters Administration. Entering Administration triggers the
beginning of the Assessment process.
Q9.
What is the Assessment process ?
A. The assessment process is split into three
main areas:
Validation
Assessment, and
Transition
Q10.
What is mean by the Validation process ?
A. This process is necessary to formally
determine whether a pension scheme is eligible, under law, to be considered for
the PPF. Validation should be completed
within 28 days of entering Administration.
If eligible, the Plan will formally commence the Assessment period which
will be backdated to the date of Administration (January 14, 2009 in respect of
our Plan).
Q11.
What is meant by the Assessment period ?
A. This is the period
when the PPF will assess whether or not it will assume responsibility for the
Plan.
Q12.
What happens during the Assessment period ?
A. During the
Assessment period the PPF will look to establish the answers to two questions:
1. Can the Plan be rescued ? (for example can NNUK continue as a going concern, or is
another employer going to take over NNUK and assume responsibility for the
Plan); and
2.
Can the Plan afford to secure benefits which are at least equal to the compensation
that the PPF would pay if it assumed responsibility for the Plan
?
If the answer is ‘yes’ to either of these questions then the PPF will
cease to be involved.
However, if the answer is ‘no’ to both of these
questions then the PPF will assume responsibility for the Plan.
Q13.
How long does the Assessment period last ?
A. The Assessment period usually lasts a minimum of one year and can be
longer, depending on the complexity of the financial situation of both NNUK and
the Plan.
Q14.
What is meant by the Transition process ?
A. Towards the end of the Assessment period, the
transition process ensures that the Plan is prepared to pass from the Trustee
into PPF ownership and this process usually takes about six months.
Q15.
What is the role of the Trustee during the Assessment period
?
A. The Trustee retains
responsibility for the administration of the Plan and for communicating with
and making permitted payments to Plan members.
The Trustee will continue to act in the interests of all the Plan
members.
However during the Assessment period there are various restrictions and
controls which will apply in relation to the Plan. In particular, pensions will be restricted to
PPF compensation levels – see Q18 for further information
regarding the restrictions.
Q16.
What is the role of the PPF during the Assessment period ?
A. The PPF will
undertake a monitoring role in relation to the Trustee of the Plan. This will ensure that the Trustee maintains the
Plan in an appropriate manner for potential entry to the PPF.
The PPF will also monitor the progress of the insolvency proceedings,
liaising closely with the Administrators.
Plan Members
Q17. What are the options for transferring
my benefits out of the Plan now that NNUK has filed for Administration
?
A. The
Trustee is not permitted to make any transfers during the Assessment period and
all proposed transfers not fully completed by the start of the Assessment
period (January 14, 2009) have been stopped.
It is possible that the PPF might agree to a transfer in certain
circumstances but this would be at a level which reflects only the level of
benefit that would have been available under PPF rules.
Q18. What level of benefits does the PPF
provide during the Assessment period ?
A. The PPF provides different levels of compensation
depending on whether you are in receipt of your pension and over normal pension
age for the scheme being considered. Normal Pension Age (“NPA”) is defined as
the minimum age at which a member can start to receive pension benefits without
incurring a reduction for early retirement - this is 60 in the case of the vast
majority of members of the Plan. Note that the term
NPA is purely a PPF concept which is used to determine this
significant age threshold. Despite the similarity of terms it is quite
different to the term 'Normal Pension Date' used within the
Plan documentation - hence the different ages.
For Members OVER NPA
at the Assessment Date: PPF compensation will be 100% for all members whether or not they are
actually in receipt of a pension at that time.
Ill Health and Spouse/Partner Pensions: 100% compensation will be paid if
you are receiving a legitimate ill health pension or you are a spouse/partner etc who was already receiving a pension
as a result of the death of a member.
Note that existing ill health pensions may still be subject to future
health reviews and that with effect from the start of the Assessment period (January
14, 2009) no new ill health pensions
can be granted.
For Members UNDER NPA
at the Assessment Date: PPF compensation for members below the Plan’s NPA (whether or not you
are actually in receipt of a pension) will be up to 90% on reaching NPA based
on your accrued pension at the start of the Assessment period. Note that
further reductions apply for early retirement and in addition compensation is
subject to a Cap which is
recalculated annually.
The ‘Cap’ is adjusted depending on your age when you
start to receive compensation. To
illustrate this, after allowing for the 90% level of compensation the ‘Cap’ is
currently:
£27,770.71 of pension per year at age 65
£25,150.73 of pension per year at age 60
£23,222.15 of pension per year at age 55
The level of Cap is reviewed in April each year.
Upon the Death of a
Member: Surviving
spouses/partners will normally receive 50% of the compensation being paid to a
member. If a member was not yet in
receipt of compensation then the member will be treated as having reached NPA
the day before his/her death and spouse/partner compensation will be 50% of
what the member would have been entitled to.
Treatment of AVC’s: The fact that a pension in payment
may include an element relating to a member’s AVC fund is largely irrelevant in
terms of current or future payments (assuming AVC used to purchase additional
‘money purchase’ pension and not additional years of service) although the
manner of payment of this element may change.
If a pension has not yet been taken then a member’s AVC fund will not be
taken into the PPF and the member will be able to use that fund to purchase
further pension benefits on the open market.
Future Increases: Note that there will be no
increases to pensions in payment except in respect of Retail Price Index
(“RPI”) inflation for that part of pensionable service from April 1997 onwards
and even this element will be subject to a maximum increase of 2.5% per annum.
For pensions in deferment
compensation will increase by RPI but subject to a maximum increase of 5% per annum. However, the compensation then paid at NPA is
still subject to the 90% figure and the overall cap at that time.
The following is a link to a leaflet from the PPF website on this topic
which describes the different levels of compensation and gives more examples which
may better reflect your own personal circumstances.
www.pensionprotectionfund.org.uk/ppp_leaflet.pdf
The following leaflets may also be useful – if any of the links do not
work then please let us know and use the following link to find their new
locations
How is Compensation Calculated
http://www.ppfonline.org.uk/ppf/pdf/PPF_factsheet_compensation%20calculated.pdf
Early Payment of Compensation
http://www.ppfonline.org.uk/ppf/pdf/PPF_factsheet_early_payment.pdf
Compensation for Survivors and Children
http://www.ppfonline.org.uk/ppf/pdf/PPF_factsheet_survivors.pdf
Compensation and Divorce
http://www.ppfonline.org.uk/ppf/pdf/PPF_factsheet_divorce.pdf
We suggest you check out other parts of this site for more detailed
information.
In addition, the Pensions Regulator website contains lots of information
about the work of the Regulator and detailed information for pension plan
members.
www.thepensionsregulator.gov.uk
Q19. Will my pension still be paid on the same day during the Assessment period ?
A. Yes, but if the Plan is accepted into the PPF at the end of the Assessment period then the payment date will become the 1st of the month in advance. You will be told about any changes nearer the time. Note that the Plan normal payment date of the 18th of the month is actually two weeks in arrears and two weeks in advance.
Q20. Will I have to pay back any of the tax free cash I received
when I retired ?
A. No.
Q21. Will I still receive an increase to my pension each year and
will this take place each April ?
A. Please refer to the Future Increases section of Q18
Q22. If you have multiple pensions, does the
PPF compensation cap consider assets in all pensions or just the one sponsored
by NNUK ?
A. The
PPF is only concerned with the pension plans it is administering so if you
have other pensions outside the PPF they would not be taken into consideration
when the PPF cap is applied.
Q23. How much notice do I need to give to
put my Nortel (final salary scheme) pension into payment during the assessment period ?
A.
You usually need to give Watson Wyatt two months
notice of your intention to take your retirement benefits and have returned all
completed paperwork to them.
Q24. I am due to
retire in two years time will I be restricted by the ‘Cap’ at today’s rate ?
A. Plan members retiring in the future will be affected by the ‘Cap’ in force at the time they start to receive their compensation. If your total benefits including those attributable to the lump sum are more than the ‘Cap’ amount, then the lump sum is taken into account when calculating your compensation. If the total benefits including those attributable to the lump sum are less than the ‘Cap’ then the lump sum is not taken into account when calculating your compensation.
Q25.
Will my AVCs be included in the size of my pension
pot in PPF compensation calculations during the assessment period ?
A.
Please see Q18 above for details of the Treatment of AVC’s in the PPF.
Q26.
Can I leave my current AVCs invested and just draw my
Nortel pension during the assessment period ?
A. No. please refer
to the Treatment of AVC’s section
of Q18.
Q27. Will I be able to
start drawing pension/ take lump sum during the assessment period
?
A. Yes, so long as you are over age 50 (this may rise to age 55 in 2010). However during the
assessment period, the Trustees would retain responsibility for the
administration of the Plan and for communicating with and making pension
payments to Plan members. Various restrictions and controls will apply in
relation to the Plan. In particular, pensions will be paid in accordance with
PPF compensation levels which will impact members who are UNDER NPA. Please see
Q18 above for full details of the levels of compensation
paid from the PPF.
Q28. I am in receipt of a
pension and I am under age 60 when will I be notified of any reduction to my pension ?
A. If you are a member under NPA (60) at the start of the Assessment period
(January 14, 2009) and you are receiving a pension in excess of 90% of the
current PPF Cap for your age then your benefits will be reduced to the PPF
level. You will be notified if this
applies to you. We anticipate that this
reduction will be made in time for the February 18 payment by Watson Wyatt but
note that a further adjustment will be made to backdate the reduction to
January 14 since current monthly payments are two weeks in arrears and two
weeks in advance. NOTE: The
foregoing does not apply to Ill Health and Spouse/Partner Pensions as
detailed in Q18.
Q29. What happens to my
life assurance or death benefits during the assessment process
?
A. From the start of the Assessment period (January 14, 2009), any
life assurance or other discretionary lump sum benefit provision on death
payable under the Plan ceased. For employees who were active members of the
Plan prior to January 14, 2009, NNUK can confirm, further to the update issued
on January 22, 2009, that it has been able to extend interim three times salary
Life Assurance cover to run to February 28, 2009. During this period the
company intends to finalise Life Assurance cover
options for affected employees on a more permanent basis. There will be a
further communication to this point in early February. Please note that joining
the GPPP during this period does not invalidate this Life Assurance cover.
Q30. I retired for ill
health reasons – is this affected in any way ?
A. The PPF can review some ill health pensions granted in the three years before the assessment process started. If you are in this category the Trustee will write to you individually. If payments are affected this will not start until after the Assessment process finishes.
Q31.
Do I have to declare the compensation I receive from the Pension Protection Fund
to the Department for Work and Pensions ?
A. If you are in receipt of means tested social
security benefits you are required to declare any compensation payment(s) you
have received from the PPF to your local Jobcentre, Jobcentre Plus Office, the Pension Service or local authority. PPF compensation must also be declared to HMRC