personal finance

Kodak UK pension plan members face threat of reductions


The UK Pension Regulator is facing criticism over a 2013 deal that allowed Kodak UK to jettison it pension liabilities but now looks set to create a £600m hit to the country’s pensions bailout fund.

Kodak had sought approval from the regulator to be released from its duty to support its 15,000 member retirement plan, following the Chapter 11 bankruptcy of Eastman Kodak, its US parent company, in 2012.

The regulator rarely allows employers who are financially troubled but still trading to sever ties with their pension fund through a mechanism known as a Regulated Apportionment Arrangement.

The RAA was approved after the trustees of the Kodak Pension Plan agreed a deal to buy Kodak’s document imaging and personal imaging businesses, known as Alaris, for $325m in cash from Eastman Kodak.

As part of the RAA, a new retirement scheme was set up, the Kodak Pension Plan 2, which allowed members to avoid being tipped into the Pension Protection Fund, which pays reduced compensation. The Alaris business was meant to support the new scheme.

However, on Tuesday, the trustees warned members they would likely to be transferred to the PPF.

“While the Kodak Alaris businesses are trading successfully, they will not produce sufficient returns in the longer term to meet the needs of the Plan,” said Nigel Moore, chair of the Kodak Pension Plan 2 trustees.

“Therefore, while the Plan can continue to pay pensions at the moment, things will have to change in the future.”

Mr Moore said being a member of KPP2 “has benefited everyone over the last few years: Some members have benefited from an uplift to their benefits, others from higher pension increases.”

But pension experts said the 2013 deal meant the PPF, which is funded by a levy on schemes, would take a bigger hit because Kodak’s scheme was now in a worse position.

When the RAA was agreed, the Kodak scheme’s deficit was £900m but this had grown to £1.5bn by 2017, according to figures provided by the PPF.

“The Kodak UK pension plan should have entered the PPF in 2013, but the Pensions Regulator allowed it to drive a coach-and-horses through the accepted rules for no good reason,” said John Ralfe, an independent pensions consultant.

“Not only was ‘regulation by expediency’ wrong in principle, it has cost the PPF, and the companies paying the levies, around £600m.”

The regulator said the 2013 deal “was a finely balanced decision based on detailed analysis”.

“The analysis suggested KPP2 had a reasonable chance of success.”

The PPF, which did not object to the deal in 2013, said the new Kodak pension plan “was a pragmatic solution which was not without risks”.

“Those risks have been monitored since 2013 by the trustees and the Pensions Regulator,” said Oliver Morley, chief executive of the Pension Protection Fund.

“The controls that were put in place have worked as intended. Members of the KPP2 scheme can be assured that the PPF is there to protect their benefits.”

About £15m in management costs, including administration and adviser fees, was paid by the Kodak Pension Plan 2 in the three years between 2014 and 2016, according to figures provided to the FT by the trustees.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.