GlobalAutoTV
Click to watch Dr. Juergen Weber -
Click to watch Dr. Juergen Weber -
euro resources


Need an office in Europe or Eastern Europe? Office suites, meeting rooms, virtual offices, network access




free downloads
EUROPE: "Central & Eastern Europe: Indirect Tax Newsletter"

EUROPE: "Central & Eastern Europe: Indirect Tax Newsletter". 20-page newsletter by KPMG International.

proceed to download
eJournals





back to index backEUROtalk May,  2005


MG Rover becomes the first client for the Pension Protection Fund

The Pension Protection Fund became operational on 6 April, just in time to receive an application from the insolvent car manufacturer. Chris Newlands looks at how the scheme will operate and who will benefit from it.

The UK's Pension Protection Fund (PPF) is up and running and, less than a week after its 6 April launch date, the PPF has already had its first – and so far only – application for funds.

Yes, we have received a call from MG Rover and we are currently in the process of validating its application,” Paul Reynolds, a spokesperson for the fund, which employs some 30 staff, told epn. Before we went live, the Department of Work and Pensions estimated we would receive approximately 150–200 applications a year, but we are equipped to handle up to 250 in the first 12 months. The fact that we have received a call so soon is no surprise for us. We are totally geared up to start taking applications.”

But MG Rover, the insolvent car manufacturer, which may need up to £50m (E73m) to plug the hole in its company retirement plan, will have to wait at least 12 months for the PPF to decide whether it will be eligible for assistance.

During that time the PPF will work out the answer to two main questions: whether the scheme can be rescued, ie can the original employer continue as a going concern, or is another employer going to take the company over and assume responsibility for the scheme, and whether the scheme can afford to secure benefits that are at least equal to the compensation the PPF would pay if it assumed responsibility.

If the answer to both of these questions is ‘no' then we will pay compensation to the scheme members,” says Mr Reynolds. But during that assessment period, the trustees of the scheme must retain liability for the administration of the scheme and must continue to make payments to members. In the very extreme situation where trustees have absolutely no money at their disposal then they have the option of taking out a loan from us. But we do not foresee anyone having to do that – trustees always have some assets at their disposal; for that not to be the case would be very unusual.”

Prior to the launch of the PPF, however, the fund had come under considerable criticism from pension fund consultants for having woefully inadequate resources, with even the fund's chairman, Lawrence Churchill, admitting that the current levy on employers – fixed for the first year at £15 for each active and pensioner member and £5 for every deferred member – looks unlikely to be high enough to secure the fund's liabilities over the long term.

Stephen Yeo, partner at Watson Wyatt, told epn in February: The government has calculated that it will need £300m a year to run the fund effectively but we believe the figure should be more like £500m. What the government failed to recognise in its calculations is that at the very time companies go bust, ie when stocks markets go down, pension fund deficits get bigger.

Once we get a situation where money has run out, the government has two options: to cut member benefits from 90 per cent to 60 per cent, for example, or to increase company levies. But given that businesses do not vote in elections, it is certain that they will go for a levy increase.”

Unsurprisingly, Mr Reynolds disagrees: The fact that any application we receive has to go through an assessment period of at least one year means that we will not have to pay out any compensation until at least April 2006 and by that time we would have collected £150m from schemes covered by our system. We also take on the assets of any scheme that has been wound up, and people have not fully understood this.”

PricewaterhouseCoopers, appointed administrator by MG Rover on 8 April after the company ran out of cash, applied to the PPF on 11 April.

Source: European Pensions and Investment News - GAI


previous page

go top
search our site


Loading

EUROtalk

Other articles from the same issue (May,  2005).

Win some, lose some
play read on

Tricks of the Trade—A physicals trader's approach to sourcing
play read on

MG Rover becomes the first client for the Pension Protection Fund
play read on

The high tech promise of the East
play read on

German economic recovery in jeopardy?
play read on

Consumer spending keeps FDI in Russia on course
play read on

Romania: Under Scrutiny
play read on

Region in Focus: Eastern Europe
play read on

EU Employment: The New Frontier
play read on


Our Free eJournals
GlobalAutoExperts

To visit GlobalAutoExperts Directory, click here.


©2008 GlobalAutoIndustry.com | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120