The Trustee Board
Nortel Networks
Issue 4 dated
May 11, 2009
Changes from previous issue:
This
issue has been almost completely revised.
Questions from previous issues have been retained where relevant
although many answers have been updated.
The Trustee Board have put together this
Q&A for all members of the Nortel Networks
You can
contact us in any of the following ways:
Email: nortel.networks@eu.watsonwyatt.com
Post: Nortel Networks
Fax: 01707 607563
Telephone: 01707 607601
Please note that the Pension Protection Fund (“PPF”) does not hold details about Plan members and cannot comment on your individual case. They will be unable to help you if you contact them directly to ask about your personal circumstances, however, they will be able to assist you if you have general queries about the PPF.
Some of the questions and 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.
This Q&A contains a lot of detailed information but
in terms of answering the question “is my pension safe ?” it may be worth
repeating some simple statements contained in the March 2009 Member
Announcement. If, on January 13, 2009,
you were:
then your pension will not be reduced and payment will continue unchanged at the same level. However, for most members, there will be only be limited or no increases to reflect future inflation.
The
PPF have now formally confirmed that the Plan has been accepted into the
assessment process (“Assessment”) and hence the effective date for the start of
the Assessment is confirmed as January 14, 2009. The PPF (rather than the
Trustee) now becomes the formal NNUK creditor for our Plan and will liaise
directly with Administrators. The
Trustee continues to be obliged to consult the PPF on many issues and will
continue to work closely with the PPF for the benefit of all Plan members.
Section 1 - Nortel and Administration
Section 4 - Normal Pension Age (“NPA”), PPF Compensation Cap (“Cap”) and Treatment of AVCs
Section 5 - Dependants and Ill-Health Pensions
Section 6 - Existing Pensioners
Section 7 - Deferred
Pensioners
Q1-1. What is Administration ?
Q1-2. How safe are the Plan assets now that Nortel
has filed for Administration ?
Q1-6. What happens to my life assurance or death
benefits during Assessment ?
Q1-1. What is 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.
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.
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.
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.
NNUK Administrators currently believe that
the interests of all creditors are best served by allowing the company to
continue to trade while restructuring and/or disposal of some parts of the
business is considered. 228 redundancies have recently been announced in the
Similar insolvency proceedings are also
taking place in
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
Q1-2. 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.
Q1-3. I have seen wildly differing estimates
for the deficit of the Plan. What is the
correct figure and what are the chances of getting the full sum from Nortel so
that the Plan can continue with full benefits for all members ?
A. Both the Administrator and the
PPF require an early indication of the ‘best guess’ deficit of the Plan but
their respective requirements of the calculation of liabilities differ
considerably. The Administrator needs a
figure which represents the cost of buying the full Plan benefits for all
members from an insurance company whereas the PPF requires a figure which
represents the cost of buying the lower PPF level of benefits. Both of these figures must represent the
situation at the close of business on January 13, 2009.
The current unaudited estimate of the value
of all the Plan assets on this date is £1.5B and the initial ‘best guess’ cost
of buying out full Plan benefits from an insurance company is estimated to be
£3.5B which leads to a deficit of £2.0B.
This figure represents the Plan’s claim against NNUK. The chance of obtaining this sum in full is
considered to be extremely unlikely.
Similarly, the initial ‘best guess’ cost of
buying out PPF level benefits is estimated to be £2.2B which leads to a deficit
of £700M. This figure represents the
minimum amount of money the Plan would have to recover from NNUK or other
Nortel companies to avoid the PPF taking over responsibility for the Plan at
the end of the PPF Assessment period.
For the purposes of the remainder of this answer we have referred to
this figure as the ‘PPF Deficit’. It
is too early to comment on the likelihood of achieving this sum.
The above figures are estimates only so please treat
them with considerable caution. Please
note that we do not expect to have firm figures until later in the Assessment
process.
The primary aim of the Trustee/PPF is to
recover as much cash as possible from the UK/North America insolvency processes
– preferably more than the PPF Deficit.
This will be a significant challenge but one which the Trustee/PPF has
already embarked on. The possible
sources already identified as being available include:
1. From NNUK (in Administration). The amount of money available to meet our claim within NNUK is not known since it will depend on (a) if and how Nortel is restructured globally, (b) the possible sale of parts of the business to third parties and (c) how ‘value’ is attributed throughout the global Nortel companies. The Plan’s claim represents over 90% of the total creditor claims on NNUK and whatever happens, the Trustee and the Pensions Regulator will have to be convinced that the Plan will receive its ‘fair share’ of any sale or restructuring of Nortel’s global business.
2.
From NNUK’s parent Nortel Networks Limited in
Again, it is not known how much money will be available to meet these claims or
indeed how our claim will be treated alongside all other claims against NNL but the Plan is certainly not the only creditor of NNL – there are others
that may give rise to some significant claims.
We have engaged the services of lawyers in
Deficit recovery will involve both of the above activities (and possibly other activities if more are identified) and a final conclusion may be some time away. If it is not possible for the Trustee to recover at least the PPF Deficit then the Plan will become the responsibility of the PPF at the end of the Assessment period.
It is worth noting that if the recovery of equity and bond markets result in an increase to Plan assets during Assessment then this will not reduce the deficit which must be achieved by the Trustee to avoid entry into the PPF. The PPF assumes the risk of movement of Plan investments (up or down) with effect from January 14, 2009.
Q1-4. If there is a restructuring or break up
of Nortel doesn’t the ‘full buyout deficit’ of the Plan transfer to the
‘restructured, associated or connected’ company
?
A. The funding deficit does not automatically transfer to associated or connected companies. The Pensions Regulator can impose a sanction on associated or connected companies in certain circumstances. The Plan is a creditor of NNUK under section 75 Pensions Act 1995 and a creditor of NNL under certain pension guarantee arrangements. The amounts which can be paid to each creditor will be calculated as part of the restructuring. Those amounts will include the proceeds of any sales or restructuring exercises involving the assets or business of NNUK and NNL. Those assets include the associated and connected companies. The important consideration here is that the Plan receives its ‘fair share’ of any ongoing business derived from the Nortel group. Further information is given in Q1-3
Q1-5. I understand the first creditors’ meeting
was held by the Administrators on March 11, 2009 – what happened ?
A. The main purpose of this meeting
was for the Administrators to present their ‘Statement of Proposals’
(“Proposals”) to the meeting and ask the creditors to vote for their approval
or otherwise. The Proposals envisaged that NNUK would continue to trade for now
since the current view is that this will give the best chance of maximising the outcome for creditors
(including the Plan) while restructuring options are fully explored. The Proposals dealt with the background and
circumstances leading up to the Administration and included an analysis of
Nortel’s business by product and geographic region. NNUK has no ‘secured’ creditors and employees
are the main ‘preferential’ creditors in respect of certain limited
amounts. The Plan is by far the largest
unsecured creditor with a reported claim of £2Bn which represents the buyout
cost of full Plan benefits with an insurance company. This is about 90% of the total creditors’
claims.
The Proposals were approved by the creditors.
Full details of the published Proposals and other material relating to the
Administration can be found at http://www.nortel.com/corporate/restructuring_emea.html.
During the
meeting the creditors opted to form a creditors' committee (“Committee”) which
must consist of between three and five creditors. The purpose of the
Committee is to act as a consultative body and to assist the Administrators in
the discharge of their functions. To fulfil its functions, the Committee may receive
regular reports from the Administrators (under obligations of confidentiality)
and is also responsible for determining the Administrators’ remuneration.
The first formal meeting of the Committee was held on April 3, 2009 and they
will be held periodically thereafter. Committee decisions are made by a
simple majority vote on the basis of one member one vote. It should be
noted that any substantial matter or amendment to the Proposals will require
the approval of the full body of creditors. Committee members are not
paid, but will receive their reasonable travelling expenses as a cost of the
Administration. The Committee consists of the Plan (represented by the PPF), Flextronics
(major supplier), JDSU (major supplier), Invest NI (manufacturing development
agency grants) and Kuehne & Nagel (logistics). Similar
creditors’ meetings will be held in all EMEA countries represented by the
Administrators.
The next major development in the
Administration process is likely to be driven by the announcement of Nortel’s
Global Restructuring plan which the Administrator will have to assess in terms
of its impact on NNUK and hence how to secure the best possible result for
creditors going forward.
Q1-6. What happens to
my life assurance or death benefits during Assessment ?
A. From the start of Assessment (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 has made alternative arrangements which
have been separately communicated to those affected employees.
Q1-7. 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 within that timeframe.
Q2-1. During PPF Assessment do the members of
the Trustee Board have the experience and knowledge to make sure that the Plan
gets the largest possible settlement from Nortel ? Do any of the Trustees have a conflict of
interest with Nortel and what happens if a Trustee’s term of appointment
expires or he/she resigns ?
A. The Trustee Board consists of
nine Trustees – an independent chairman, three elected by members of the Plan
(two are pensioners, one is now a former employee), four nominated by NNUK and
one representing an independent professional Trustee company (BESTrustees). Once appointed, all Trustees are under a
legal obligation to promote and protect the interests of all members regardless
of status.
More information about the Trustees can be
found at http://www.nortelpensions.com/meet_the_teams.cfm?pageid=12
Two of our Trustees have experience of working with the
PPF for other companies going through Assessment and the Trustee Board
also has access to a team of professionals to assist us going forward – Pinsent
Masons (Legal – UK), Cassels Brock (Legal – Canada), PricewaterhouseCoopers
(Financial), Mercer (Investment), Watson Wyatt (Actuarial) and, of course, from
the Trustees are working closely with the PPF whose objectives going forward
are very similar to those of the Trustee Board.
In respect of any new appointments that may
become necessary it would seem sensible to seek individuals who have knowledge
and experience of the PPF Assessment process and/or previous involvement with
the operation of the Plan. It is also
likely that we would have to consult the Pensions Regulator and/or the PPF
before decisions are taken.
Q2-2. I understand that the official ‘year
end’ for Plan accounts is to be changed to January 13, 2009 – why is this and
how does it affect members ?
A. The Trustee Board has decided to change the Plan year end
for this year only from March 31, 2009 to January 13, 2009. The Plan actuary
needs a special set of accounts to reflect the situation at January 13, 2009
for the purpose of calculating Plan assets and liabilities for PPF
purposes. Moving the statutory ‘end
year’ to the same date will avoid the cost of having two sets of accounts
prepared during 2009. These are the
reasons for changing the ‘year end’ and the change will not affect your pension
from the Plan.
Q2-3. I understand that the Consultative
Committee (“CC”) has been disbanded because it was an NNUK sponsored body – are
there any plans to reinstate it as a Trustee sponsored body during the PPF
Assessment process ?
A. The CC was democratically elected
by all members of the Plan to reflect the views of members to NNUK and
to the Trustee. In recognition of this
status, the Trustee is now in discussion with former members of the CC to agree
a way forward with the aim of helping the Trustee to maintain good
communication with the membership at large.
This answer will be updated when those discussions are complete.
Q3-1. What is the Pension Protection Fund ?
Q3-9. Can I go online and access PPF documents and information directly ?
Q3-1.
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 automatically triggers the beginning of the Assessment process.
Q3-2. I understand that the PPF have now
formally accepted Nortel into the Assessment period –why did it take so long
and what effect does this have going forward ?
More importantly, why does the Trustee think the PPF represents the best
deal for members ?
A. The PPF have to follow certain
validation procedures before formal acceptance of NNUK into the process. One of
the procedures is to establish who the current employers in the Plan are. This is particularly complex in the case of
the Plan since there were some 80 historical employers which used to
participate in the Plan over the past 20 years.
The PPF needed to see full evidence of all these so they can be
satisfied that there are no employers other than NNUK who may still continue to
participate in the Plan. Confirmation of
NNUK’s entry into Assessment was made at the beginning of April 2009 but the
effective start date for Assessment is unchanged and will remain as January 14,
2009. The major difference going forward
is that the PPF now becomes the formal creditor of NNUK in place of the Plan
and will be primarily responsible for the recovery of the sums from NNUK
detailed in Q1-3.
However, the Trustee and the PPF will be working closely together to maximise the sums recovered.
Going forward, the Trustee is now obliged to
operate in accordance with PPF procedures and will have to seek approval on
many issues which were previously a matter solely for the discretion of the
Trustee.
With regard to the issue of the PPF
representing the ‘best deal for members’ it is important to understand that the
Trustee has absolutely no discretion in this respect. As soon as NNUK filed for Administration on
January 14, 2009 the Administrators were obliged to notify the PPF, the
Assessment period automatically started and the Trustee was obliged to start
following PPF procedures – e.g. service accruals for active members ceased,
restrictions on discretionary benefits commenced, pension entitlement became
restricted to PPF compensation levels. The process of validation by the PPF has
been lengthy for the reasons outlined above and could be compared to waiting
for an insurer to check details of your policy before processing your claim.
There is a possibility that the Plan may not
transfer to the PPF – see the possible
outcomes detailed in Q3-3.
Q3-3. What triggers the end of the PPF
Assessment and what are the possible
outcomes for Plan members ?
A. This issue is covered in letters sent to every member but is worth repeating here:
There are three possible outcomes to the Assessment process:-
Q3-4. If the Plan manages to recover more than the
‘PPF deficit’ level from the processes described in Q4-8 and we end up buying
member benefits from an insurance company then how will the excess funds be
allocated across the Plan membership ?
A. If the
Plan does not enter the PPF at the end of the Assessment because it recovers
more than the "PPF deficit" level (see full explanation in Q1-3), benefits for Plan members will be paid out in
accordance with the statutory priority order. This order broadly applies the
total amount of the Plan assets to pay out PPF level of benefits to all members
first followed by benefits derived from AVCs and then all other benefits, as
much as can be afforded, on a proportionate basis between members.
Q3-5. What effect is NNUK being in Administration
and the involvement of the PPF having on the investment strategy for Plan
assets ?
A. At the end of 2008 the allocation
of Plan assets was approximately 53% in equities, 26% in Fixed Interest Gilts
and 21% in Bonds. Now that the Plan is formally in Assessment, the Trustee
intends to take steps to change asset allocation to align our portfolio with the
PPF Statement of Investment Principles.
These can be found by following this link: http://www.pensionprotectionfund.org.uk/sip2006.pdf
Q3-6. 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.
Q3-7.
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.
Q3-8. Under Plan rules all pension increases
occurred on April 1st – is
the amount and timing still the same under PPF rules ?
A. No. Future pension increases will be at levels specified by the PPF – in all cases these will be lower than under the Plan. Only that part of your pension that you earned whilst working for NNUK on or after April 6, 1997 will increase. However, if your pension includes any amounts resulting from externally invested AVCs or redundancy payments taken into the Plan at the time of retirement then these amounts will continue to increase. Please refer to the table below for details and to Q4-3 for more details of AVCs etc.
Under
the PPF, the
normal date for both increases to pensions in payment and pensions in deferment
is January 1st so the first date for these increases will be January
1, 2010.
Element Increase
Date Increase
Rate
RPI
Capped at
Deferred
Pensions January 1st 5%
pa
Pensions in
Payment
AVC/Redundancy amount April 1st 3%
pa
Earned pre April 1997 No Increase N/A
Earned April 1997 onwards January 1st 2.5%
pa
Q3-9. Can I go online and access PPF
documents and information directly ?
A. Yes. The main link to the PPF website is: www.pensionprotectionfund.org.uk
and there is also a ‘members’ website: www.ppfonline.org.uk
The Pensions Regulator website contains information about the work of
the Regulator and detailed information for pension plan members: www.thepensionsregulator.gov.uk
The following leaflets may also be useful – if any of the links do not work
then please let us know:
General description and levels of compensation.
www.pensionprotectionfund.org.uk/ppp_leaflet.pdf
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
Q3-10. I read reports in the press that the
Nortel scheme will double the number of pensioners the PPF is responsible for
and they may be forced to cut back benefits.
Surely the PPF is guaranteed by the government so that couldn’t happen ?
A. The PPF have said that they recognise we are in unprecedented times. Business is clearly experiencing difficulties and we understand that the PPF is preparing itself for more claims during the next year and beyond. But, the PPF has indicated that it could cope if it is hit by a larger than expected claim. The PPF itself states that the framework it works within is resilient and it has a commitment to paying compensation to people who may have lost their pension through their employer going bust. This remains its priority.
We understand that the PPF has enough cash to meet that commitment and that liquidity is not a problem. It is important to remember that the PPF is like a pension scheme and that it only pays out compensation when it falls due. Currently the PPF has about £3bn in assets. It is paying out around £4m a month in compensation.
The PPF is not like a commercial insurer so it does not need to have enough assets on hand at all times to meet its future liabilities. This provides the PPF time to assess the true extent of the recession.
Remember, everyone has a part to play in making sure the pensions system is sustainable, notably the Government, the Pensions Regulator, the industry and the PPF. We understand the PPF remain committed to keeping the levy stable at least until 2010/11. But by helping to relieve pressure on levy payers during the hard times, we are likely to need them to make up for this in the good times.
4. Normal Pension Age (“NPA”), PPF Compensation Cap (“Cap”) and Treatment of AVCs
Q4-1. The March Member Announcement noted that ‘a
definitive breakdown’ of individual NPAs for the various schemes in the Plan
was not available – what is the situation now ?
Q4-1. The March Member Announcement noted that
‘a definitive breakdown’ of individual NPAs for the various schemes in the Plan
was not available – what is the situation now ?
A. We now have a full definition covering all members of the Plan. The PPF legislation states:
"
Using the above definition, the NPA
for the Plan is age 60 with the following exceptions:
NPA is 65 for MALE
MEMBERS ONLY who:
·
are holding Equivalent
Pension Benefits (EPB) or Q entitlements*;
· were a member of the STC Employees (UK) Pension Plan (Including STC Non-Contributory and Works Plans) who left service prior to April 6, 1988;
· were a member of the STC Senior Staff (UK) Pension Plan who left service prior to April 6, 1988;
· were a member of the ICL Pension Fund who left service prior to April 6, 1988;
· were a member of Northern Telecom Retirement Benefits Scheme who left service prior to April 6, 1990;
· were Nortel Networks UK members who left service prior to May 17, 1990 at your own request.
NPA is 62 for MALE MEMBERS ONLY who:
· were Nortel Networks UK members who left service prior to May 17, 1990 at the company’s request.
· were STC Executive Plan members
· were Supplementary Category 3 (ex-ICL and ex-STC) members who left service prior to May 17, 1990.
NPA is 57 for FEMALE MEMBERS ONLY who:
· were STC Executive Plan members
· were Supplementary Category 1 (ex-ICL and ex-STC) members who left service prior to May 17, 1990
· were Supplementary Category 2 (ex-ICL and ex-STC) members who left service prior to May 17, 1990.
NPA is 58 for members who:
· were Supplementary Category 1 (ex-ICL, ex-STC and Northern Telecom) members from May 18, 1990.
· were Female STC Senior Executive Plan Members
* If your NPA is anything other than age 65 and your pension includes EPBs or Q scheme pension, it is only those elements (i.e. the EPBs or Q scheme pension) which have an NPA of 65
Q4-2. I am still confused about how the
‘Compensation Cap’ works – is it just applied once or is it reviewed each year
and how is the 90% factor applied ?
A. The Cap is only applied once and
only if you are or were under NPA – either at your age on January 13, 2009 if
you were already in receipt of a pension OR at your age when you first put your
pension into payment in the future.
You will have read in the March 2009
Announcement that the key criteria to determine if your pension may be reduced is
your NPA which can vary depending on which category of Plan membership applies
to you (see full definition in Q4-1). For the purposes of this answer we will assume
that your NPA is 60, you were aged 59 on January 13, 2009 (under
NPA) and were in receipt of a pension of £30,000.
Already in
receipt of a pension on January 13, 2009. The first step is to adjust this figure to
reflect any lump sum you may have taken at the time you first took your
pension. Let us suppose that the lump sum you took resulted in a reduction of 20% to your initial pension. We
have to calculate what your current pension would have been if you had not
taken this lump sum and in the example given this would be £37,500
(because £30,000 is 20% less than £37,500).
The Cap
for age 59 at January 13, 2009 was £27,481.56 which is less than your
adjusted current pension of £37,500 so we calculate the ‘Cap Fraction’
which in this case is 0.7328416 (£27,481.56 divided by £37,500). This is then applied to your actual current
pension of £30,000 to give a figure of £21,985.25. Finally, this is reduced to the 90% level to
give a new pension of £19,786.73 i.e. a reduction of 34%.
If you assume that no lump sum was
taken then the new pension would be £24,733.40 i.e. a reduction of 17.5%.
NOT in
receipt of a pension on January 13, 2009. To give an example of this calculation we
have to make more assumptions so let us assume (as above) you were aged 59
on January 13, 2009, had accrued a pension under the Plan of £30,000
at that date and that you actually take your pension in January 2010 but
do not take any lump sum payment.
We need to further assume an inflation figure for your deferred
pension over the next 12 months (say 2.5%) and how the Cap will increase
in that time (say 3.5% which just happens to be the increase applied on
April 1, 2009).
The current Cap at age 60 is £28,924.65
and let us assume no change before January 2010. Your Plan
pension entitlement when you retire will have increased by 2.5% to £30,750
(note inflation increases are currently limited to 5%). Your Plan pension is over the Cap so your pension
will be restricted to £28,924.65 which is then reduced to the 90% level to
give a starting pension of £26,032.19 i.e. a reduction of 15% to Plan entitlement.
Note that even if the Cap is not a
consideration, if you are under NPA on January 13, 2009 then your pension
(or entitlement) will be reduced to the 90% level.
In the examples above it is assumed that none
of the Plan pension entitlement includes an element driven by externally
invested
AVCs or redundancy
payments taken into the Plan at the time of retirement. If these elements are present then for
pensions already in payment at January 13, 2009 they will be excluded for the
purposes of the above calculation and for pensions taken in the future AVCs and
redundancy payments will have to be used to buy benefits on the open market
(e.g. an insurance company). Please refer to Q4-3 for more
details of the treatment of AVCs and redundancy payments
Q4-3. I have read in the March announcement
letter about the treatment of AVCs and redundancy payments that are a part of
my pension – can you please explain what will happen in more detail ?
A. If you were NOT in receipt of
your pension at the start of Assessment then any AVC sums which are invested with
external providers (e.g. Equitable Life, Winterthur Life, London Life or MGM)
cannot be brought into the Plan when you retire and neither can any redundancy
payments (the latter also known as ‘sacrifice pension’). These sums will have to either be used to
purchase an annuity with an approved external provider of your choice. The foregoing are referred to as Money
Purchase benefits and do not form part of PPF compensation.. However, Defined
Benefit (‘DB’) AVCs are part of PPF compensation since they purchase
additional years of service in the Plan.
If you were
in receipt of your pension at the start of Assessment then that part of your pension resulting from
externally invested AVCs (e.g. Equitable Life, Winterthur Life, London Life or
MGM) and any pension resulting from a redundancy payment (provided retirement
was not deferred beyond the date of redundancy) are classed as Money Purchase
benefits and will not become part of PPF compensation at the end of the
Assessment process – please note that where a redundancy payment was used to provide a lump sum
under the Plan, the Money Purchase benefits which fall outside the PPF
calculation will be reduced by the amount of that lump sum. Initially, these Money Purchase benefits will
continue to be paid as part of your normal pension payment and, as noted in Q3-8, inflation increases will be added on April 1st
each year. At some time during the
Assessment, the Trustee will arrange to ‘buy out’ these Money Purchase benefits
with an external insurance provider and the cost will be charged to Plan
funds. Note that the benefits that will
be purchased will be the same as those which members were entitled to under the
Plan – i.e. will include RPI inflation (up to 3% per annum) and, if selected at
the time of retirement by a member, a future 50% benefit for member’s surviving
partner/spouse. Once the buyout or
transfer is completed, members will receive two pension payments each month –
one from the external insurance company and one from the PPF. Note that the foregoing also applies to any
‘survivor’ pensions in payment at the start of Assessment.
Q4-4. I am under NPA and know that my pension
will be ‘capped’ with the reduction being backdated to January 14, 2009. I now understand that the ‘overpayment’ in
the tax year 2008/2009 will not be clawed back until the 2009/2010 tax year
which could mean that I pay too much tax at the 40% level in 2008/2009 – how
will this be corrected ?
A. Watson Wyatt (the Plan
administrators) are aware of this issue and will contact HMRC shortly with
details of any pension overpayment in 2008/2009 which you are due to repay
during 2009/2010. This will enable HMRC
to issue new tax codes for 2009/2010 where necessary.
If you believe you may have overpaid tax in
2008/2009 but have not received a new notice of coding from HMRC by the end of
August 2009 then we suggest you contact HMRC on 08450 703703. You should quote your NI number, PAYE
reference 961/9900802 and have your 2008/2009 P60 and any recent payslips to
hand.
Q4-5. I retired at age 50 and hence my starting
pension was reduced by the Plan factor of 3% per annum for every year below 60
i.e. a total reduction of 30%. I am now
aged 59 so will there be any further reduction in my current pension ?
A. Yes. Assuming your NPA is 60 and that your age on
January 13, 2009 was 59 then there will be a further reduction of at least 10%
since for people under NPA PPF compensation is limited to 90% of your
current pension. Depending on the
amount of pension you are receiving, there could be a greater reduction if you
are affected by the Cap so please look at the full calculation in Q4-2 if you think this may affect you.
5. Dependants and Ill-Health Pensions
Q5-1. Are the PPF rules about pensions for
surviving spouses, partners and dependants the same as in the Plan ?
Q5-3. What are the PPF rules about ill health
pensions ?
Q5-1. Are the PPF rules about pensions for
surviving spouses, partners and dependants the same as in the Plan ?
A. PPF compensation of 50% of
member’s pension is payable to surviving spouses, qualifying unmarried partners
and civil partners upon the death of a member upon production of the relevant
evidence e.g. marriage/civil partnership certificate. In the case of unmarried
partners, evidence will have to be provided of cohabitation and that they were
financially dependent or interdependent
with the Plan member to qualify for benefits.
In accordance with PPF rules, compensation will be paid to dependent children up to age 18 or age 23 if they are either in qualifying further education or is incapable of working by reason of a disability under the Disability Discrimination Act 1995. No compensation is payable beyond the age of 23.
The amount of compensation depends on whether compensation is being paid to a
surviving spouse or partner.
If it is being paid, the amount of compensation will be as follows;
One child – 25% of the member’s compensation
Two or more children – 50% of the member’s compensation, divided equally
between the children.
If no other compensation is being
paid, the amount of compensation will be as follows;
One child – 50% of the member's compensation
Two or more children – 100% of the member's compensation, divided equally between the children.
Q5-2. I am aged over 65 and when I retired I
seem to recall that my wife’s future pension was more than 50% of my own – if
she survives me will she get more than 50% of my pension at that time ?
A. No. You may recall that when you retired you had
the option to take your full pension entitlement or a lump sum and a reduced
pension entitlement. Under Plan rules, a surviving partner or spouse would have
been entitled to a maximum of 50% of your full pension even if you decided to
take a lump sum. You may also have
elected to take ‘early retirement’ which would have further reduced your initial
pension without affecting your spouse/partner pension. This may mean that the illustrative
partner/spouse pension appeared to be significantly greater than 50% of your
initial pension.
In summary, whatever arrangement or
entitlements you may have had under the Plan, PPF compensation for a future
surviving partner or spouse will be precisely 50% of your pension at the time
of your death.
Q5-3. What are the PPF rules about ill health
pensions ?
A. With effect from the beginning of
the Assessment (January 14, 2009) no new ill health pension will be
considered or put into payment. In
respect of any existing ill health pension in payment on January 13, 2009, this
will continue for the life of the pensioner.
However, note that if an ill health pensions was awarded less than three
years prior to January 14, 2009 then the
PPF has the power to review the circumstances surrounding the grant of the
pension – if the award was judged to be incorrectly made then payment could be
suspended until the member reaches NPA.
If you are in this category the Trustee will write to you
individually. If payments are affected this will not take effect until after
Assessment finishes.
Q6-1. I am a retired pensioner (over NPA) and my
last pension statement referred to a
number of elements of my pension e.g. GMP before and after April 1988, pension built up before and after April 1997,
AVC pension, Sacrifice pension, non increasing elements. Are they all treated the same under PPF rules
and will there be any changes to my state pension which has reductions because
I was ‘contracted out’ while at Nortel ?
Q6-2. Will my pension still be paid on the same day
during Assessment ?
Q6-3. Will I have to pay back any of the tax free
cash I received when I retired ?
Q6-1. I am a retired pensioner (over NPA) and
my last pension statement referred to a
number of elements of my pension e.g. GMP before and after April 1988, pension built up before and after April 1997,
AVC pension, Sacrifice pension, non increasing elements. Are they all treated the same under PPF rules
and will there be any changes to my state pension which has reductions because
I was ‘contracted out’ while at Nortel ?
A. The
impact on AVCs and sacrifice pension is dealt with in Q4-3.
Non increasing elements will remain unchanged.
The remainder of the elements will continue to be paid in full (because
you are over NPA) and increases will be as set out in Q3-8.
Your state pension will continue to be paid as normal and changes to your Plan
pension described in this Q&A will not lead to a reduction of any state
benefits you may be entitled to.
Q6-2. Will my pension still be paid on the same
day during Assessment ?
A. Yes. For the
remainder of 2009 your pension will continue to be paid on or immediately
before 18th of the month for that month. From January 2010 the
payment dates will be
harmonised to follow those of the
PPF and changed to 1st of the
month in advance. You will be reminded about this change nearer the time.
Q6-3. Will I have to pay back any of the tax
free cash I received when I retired ?
A. No.
Q7-1. I have not yet taken my pension and I am
under NPA – what are the PPF rules about taking lump sums and the
resulting pension reduction and do they
differ from the Plan rules ?
Q7-6. I am over 50 – can I still take early
retirement ?
Q7-1. I have not yet taken my pension and I am
under NPA – what are the PPF rules about taking lump sums and the
resulting pension reduction and do they
differ from the Plan rules ?
A. Under the
PPF rules, members can commute part of their pension (i.e. reduce it) in
return for a lump sum. Commutation is only undertaken at the time of
retirement, and is restricted to a maximum of 25% of a member’s pension
entitlement. For most members these provisions are the same as under the
Plan rules. Under the PPF rules, there
are different factors that need to be applied to work out how much your pension
will be reduced to provide you with a lump sum.
Q7-2. If a deferred member dies before reaching
NPA then how much pension will his/her partner or spouse be entitled to ?
A. If a
member had not taken early retirement prior to the start of Assessment and died
before reaching his/her NPA for the Plan then the age of the member immediately
prior to death will be deemed to be his/her NPA. This means there will be no
early retirement reduction and compensation will be payable from this date.
Compensation will be payable at 50% of what the member would have been entitled
to at NPA but subject to the application of 90% and the Cap.
Please see Q 4-2 and Q5-1 for further details.
Q7-3. What happens to death in deferment
benefit under PPF rules – I believe the Plan refunded member’s contributions ?
A. Member’s contributions are not refunded – see Q7-2 for details of survivor’s benefits
Q7-4. I have had two periods of service at
Nortel – I was already a deferred pensioner for my earlier service and ceased
to be an active member for my ongoing current
employment at the beginning of Assessment. How are these two periods of service treated
under PPF rules when I eventually take my pension ?
A. Your accrued benefit for each period of service will be calculated separately. Assuming you were under NPA on January 14, 2009 then if your total benefit is greater than the ‘Cap’ at the time you retire then your benefit will be reduced accordingly. Finally, the 90% factor will be applied to arrive at your initial pension amount.
Q7-5. I have a ‘defined benefit’ pension from
Nortel and from a previous employer. For
the purpose of determining whether or not I am over the ‘Cap’ will the PPF take
into account my other pension when I retire ?
A. No. The PPF will only take into account your NNUK
pension. Even if your previous employer became
insolvent and their pension scheme became the responsibility of the PPF each of
your pensions would be treated completely separately.
Q7-6. I am over 50 –
can I still take early retirement ?
A. During Assessment members can apply for
early retirement because the Plan rules currently allow it. Benefits are
payable at PPF levels using PPF early retirement factors and the PPF rates for
exchanging pension for a cash lump sum. If the Plan is eventually transferred
to the PPF members can take early retirement
from age 50 (age 55 from 6 April 2010 – see Q7-7 below).
Compensation will be reduced using PPF factors. Members must normally give six
months notice before opting for early payment of compensation.. See Q7-7 for more information on the change to minimum retirement
age.
Q7-7. I understand that the minimum age at
which a pension can be first put into payment will rise from 50 to 55 in 2010 –
does this mean that under Plan/PPF rules no member under 55 in 2010 will be
able to draw a pension or will members who currently have a right to retire at
50 under the Plan rules continue to have this right ?
A. This issue is likely to become
the subject of further legislation to reflect the HMRC position on the minimum
pension age which is currently age 50 for our Plan. At this stage there is no
further information that can be given but the Trustee’s legal advisers have
written to the Department for Work and Pensions (DWP) requesting clarification
and guidance on how the legislation may be changed. If it is not changed
then members will not be able to take their pension from the Plan until age 55
from April 2010.