Slightly hidden away in the bowels of the Daily Telegraph comment section is a piece about Wedgwood Potteries. Sadly this wonderful British institution has faced financial difficulties in recent years and as a result, the pension scheme has had to go into the Pension Protection Fund in order to be rescued. So far so sadly usual.

But the Wedgwood Scheme was a multi employer scheme and one of the employers was the Wedgwood Museum in Stoke on Trent – completely independent of the pottery company itself but with 5 employees who were members of the main scheme. So the Museum became a participating employer as it was required to be. And this is where the whole things becomes a bit unfortunate.

The scheme is what is called a ‘last man standing’ scheme. So any solvent employer who happens to be the last employer in the scheme stands to pick up the whole of the deficit of the scheme – the Section 75 debt. In Wedgwoods case, this is some £134 million apparently. Unsurprisingly this lovely Museum doesn’t have that sort of cash – or rather it does have some of it, but only if it sold off the precious artifacts it holds. And this is what the Pension Protection Fund is seeking an order from the High Court to do.

Needless to say, the locals are up in arms and the PPF is being accused of cultural vandalism by MPs and commentators which is in a sense quite true. It would be a terrible blow to a superb heritage were this to happen. I have no idea what way the Courts will turn in deciding this issue. But it would be wholly wrong to blame the PPF for taking this action. The PPF has a statutory remit to recover as much of the debt as it legally can from the companies or organisations liable to pay it.

If there is any villain in this piece it is the dreadful Section 75 Pensions Act 1995 which has never worked properly since it first hit the statute books and through several attempts to put it right. Those attempts have only led to further complexity and confusion and have acted as a break on genuine corporate activity. Oh yes, and in this case, it is simply unfair.

Well, what a day it’s been. First, the Government has just annouced the result of its review of the way pension contributions are to be taxed, especially in relation to high earners. The previous administration had proposed an impossibly complicated way of ‘bashing the rich’ which the Coalition immediately on entering office decided to scrap. After the appropriate period of *ahem* consultation they have just announced that the previous £255,000 annual limit on tax relieved contributions is to be reduced to £50,000

In reality, this is rather better than the industry had hoped as initially, an even smaller cap of £30,000 was being mooted which could have potentially caught significantly higher numbers of people and could have had the counter productive effect of reducing the numbers saving into a pension. Before the Daily Wail starts bleating, let’s just be completely clear what this actually means. For Mr and Mrs Average, the thought that they would be able to afford to squirrel £50K a year into their pension scheme is – frankly – laughable. If we take an average annual salary of say £30K a year with a contribution rate of (say) 10% this only equates to £3000 a year. Even if matched by an employer contribution of similar amount you’d have to be going some to hit the cap.

So in fact, the only people likely to be really hit are those very high earners for whom pension saving is only a small part of their overall investment strategy. High net worth individuals will no doubt find this something of an irritation but hardly the end of the world as we know it. All in all, I think this is not a bad compromise.

And on the same day, in the Bonfire of the Quangos, it’s announced with some fanfare that the Pensions Ombudsman and the Pension Protection Fund Ombudsman are to merge. Well, stop the press. Did someone not bother to tell the Government that in reality, these two bodies are already encompassed in one organisation so there will be absolutely no saving whatsoever. What a waste of time. But the good news is that TPAS is saved. Just a pity that NEST was too!!

This weeks’ items – another massive bailout (potentially) and a oopsie by a pension industry ‘good guy’

First, the Coalition Government has announced it’s intention to sell off part of the Royal Mail. So far so predictable. The kicker in this particular tale is that the Royal Mail is currently sitting on an £8BILLION (yes you read that correctly, £8 BILLION!!!) deficit and that’s just what’s been revealed in the company accounts. The Actuarial Valuation results due soon are expected to show an even bigger deficit. This will not ordinarily make it a particularly attractive proposition for any potential buyer.

But wait…everything is fine…the British taxpayer is going to pick up the tab…again. While the Government has said that it will seek the injection of private capital the chances are that this will fail as it did last year when an attempt was made to sell part of it off.  St Vince of Cable has indicated that the Government (that’s actually you and me to be honest) will take on the pension liabilites to make it more of a viable proposition for a buyer. We already have a gaping big hole in our national finances. What’s another £8 billion between friends? I would just love to see the PPF cope with this scheme!!

The second story this week concerns a claim by a former senior employee of the Pensions Advisory Service (TPAS) that the organisation discriminated against him on the grounds of age by sacking him before a restructuring exercise comes into effect, in an effort to avoid making him redundant just before he retired thus avoiding paying him compensation under a Civil Service compensation scheme. I don’t want to go into the rights and wrongs here. It’s not my place. But you would think wouldn’t you that an organisation like TPAS would have taken advice not from a lawyer (their decision may well have been LEGALLY watertight) but from a PR Guru who would almost certainly have told them that
bad press on something like age discrimination was bound to lead to adverse comment from bloggers and the industry alike!! Common Sense guys. Trumps economics every time!!

So, Readers Digest (or rather the pension scheme of course) has now entered the PPF Assessment process as was almost inevitable following the calling in of the Administrators in February. Readers of my blog will know that RD had been in discussion with the PPF prior to this in relation to its multi million pound deficit and came a cropper when TPR refused to accept a negotiated deal that would have seen an innovative resolution including a significant cash injection and a large equity stake in the US parent company being taken by the scheme trustees.

This was not TPR’s most glorious hour (frankly they’ve not had a glorious hour for a long while now). The publishing interests of Readers Digest itself has now been bought by a private equity company but they will not take on any liability for the pension fund.
Instead, this will be left in the shell of the old RD with TPR now in the unenviable position of considering how the £125m liability can be satisfied. Let’s not forget that TPR has a statutory duty to protect the PPF which will now be picking up the tab. For those of my readers familiar with Twitter speak, we would call this #fail!!

Even if TPR can use it’s powers to call in a Financial Support direction, this will fall on the US parent. And we all know how successful TPR has been when trying to get Overseas companies to pay up under an FD. Again for the Twitteratis amongst you – Nortel#Fail!!

In a mid week update to my Monday posting, Readers Digest has just announnced it is going into administration in the UK due to the size of the DB pension scheme deficit.

What seems to be most interesting in this case is that the parent company seems to have been in negotiation with the Pension Protection Fund about making payments to the scheme (presumably to ensure that the compromise it was contemplating would not prevent entry to the PPF should it be necessary). However, this ‘agreement’ did not meet whatever stringent test the Pension Regulator had in mind. Result – RD goes bust and the scheme probably ends up in the PPF anyway. Well done tPR – way to go!!

NB – The Pension Regulator has a statutory duty to ensure schemes do not fall into the PPF if at all possible. I think we can assume that on this one at least, it failed miserably.

A small article in that must read magazine for all lovers of …er….furniture – Cabinet Maker – (and with thanks to ‘My Company Pension’ for pointing it out) really sums up the current parlous state of Defined Benefit pension provision in the UK today.

HJ Berry a Preston based furniture manufacturer, has gone into administration with the £9 million black hole in it’s pension fund being a major contributory factor in its insolvency. It’s 85 staff members are likely to find themselves without a job soon and while of course, there is the possbililty that their pensions will be protected to a large extent by the Pension Protection Fund, (assuming the scheme is eligible) nevertheless, the situation is symptomatic of the state not only of the pension universe but also of manufacturing industry in the UK in 2010.

As we hear about the billions owed by BT to it’s pension arrangements, the figures are so large as to be almost become meaningless to the likes of you and I. But here is a small company, brought to its knees by bad regulation, bad law and bad economics. As £56 million gets put into the paws of a couple from Gloucester (good luck to them by the way),  a  fraction of which would have saved those 85 jobs,  doesn’t it just, for a teeny tiny minute, make you think that somewhere, priorities need reassessing?

Postscript: and just to prove it isn’t just manufacturing, apparently a ‘Magic Circle’ law firm based in Canary Wharf has also just disclosed its DB scheme deficit has increased by 50% from £11m to nearly £16.5 m. And before the ‘let’s kill all the lawyers’ believers start feeling warm and cosy with their schadenfreude, remember that this scheme is not for the fat cat partners, but mainly for the secretaries, support staff, and junior lawyers

Well, it’s not been the most exciting of weeks in the pension universe but I suppose the big story – well big for us pension junkies – is the announcement made by Angela Eagle that the Guaranteed Minimum Pension element of a pension will have to be equalised for men and women.

In fairness, she did state that this would only apply in respect of schemes falling into the Governments ‘junior’ lifeboat, the Financial Assistance Scheme, but there are few of us who believe that the principle will not be extended to the ‘big’ lifeboat, the Pension Protection Fund and from there to all schemes that carry GMP’s for their members, that is, those who contracted out of the second limb of the state pension arrangements.

We have always known in our hearts that ever since the Barber judgement of the 17 May 1990 which first required the equalisation of benefits in pension schemes, that GMP’s would one day need to face their ‘day of judgement’ too. The problem is that GMP’s are inherently unequal, based as they are on State Pension Ages which currently are 60 for women and 65 for men – although of course this is gradually changing. No one has provided any real guidance for schemes on how they are supposed to equalise these benefits which up to fairly recently have been another file in the ‘it’s a bit too difficult’ basket at the Department for Work and Pensions. The PPF has consulted on how it would like to see it happen and this may well prove to be the model that schemes will have to adopt.

But, and it’s a very big but, this additional burden on schemes will not be an easy one for them to bear in these days of deficits and recovery plans. Actuaries are pulling their hair out trying to understand just how schemes are now to be valued given this additional tranche of liability. If the GMP is to be equalised with effect from 17 May 1990 one can only imagine the howls as millions are added to already overburdened employers’ contributions.

All we have so far is an announcement of course with no detail or even an inkling of how the process will work in practice and certainly no legislation yet. Opening one’s mouth without engaging gear in brain is seemples Ms Eagle. Now let’s see if you can put your money where your mouth is – or will you leave it to your successors to sort out?

The death rattle for DB schemes grows ever louder.

The Conservatives have indicated that if the PPF ever faces financial meltdown due to increasing claims on its purse, were they to be in power, they would not bail it out. Brave words from the sidelines, but I wonder whether in reality they would be willing to face the wrath of the ageing electorate by pulling the plug on it were (for arguments sake) BA and a few other big players hit turbulence.

The world has moved on since the days of passive resistance and genteel letters to the Times. The internet has provided a voice even for my generation of baby boomers and we are the ones most likely to be affected by any removal of the pension lifeboat however leaky it may be!! Action can be organised at the drop of an e mail!

But hold on…there is another side to the problem isn’t there? DB schemes are closing at an increasing rate and we are unlikely to see them coming back anytime soon if at all. The PPF depends on those schemes paying for its existence by way of the levies it imposes. The fewer the schemes paying levies, the more likely it is to fall over if the worst happens due to decreasing revenue. The PPF is, in effect, a large pension scheme, subject to the vagaries of the investment markets as much as any other scheme – only bigger. How can it protect itself from the risks it faces in a volatile environment? The phrase ‘between a rock and a hard place’ comes to mind here.

The current Government bailed out the banks to the tune of several billion pounds and a future Government might well say ‘enough is enough’. But surely the PPF would be a far worthier recipient of monies from the public purse than any risk taking culpable bank. Isn’t it?