TPR publishes report on Nortel case
Wednesday 13 September 2017
The Pensions Regulator (TPR) today published a report (PDF, 523kb, 8 pages) on the use of its anti-avoidance powers in seeking financial support for the Nortel Networks UK Pension Plan.
TPR has welcomed the start of payments to the UK plan following a settlement reached in October 2016 between global creditors on the allocation of over US$7 billion raised from the sale of Nortel’s assets. The settlement agreement, which became legally effective in May, ended several years of litigation in North America about how the funds should be allocated following the Nortel group’s insolvency in 2009.
The agreement ends a period of uncertainty for UK members and minimises the cost to the Pension Protection Fund (PPF).
In 2010, TPR’s Determinations Panel held that Financial Support Directions (FSDs) should be issued to several Nortel group companies to provide support to the pension plan. In conjunction with the plan’s trustee and the PPF, we pursued the case for financial support right through to the settlement being reached in October 2016.
Following the settlement agreement becoming effective, we have concluded, together with the trustee and the PPF that it would not be reasonable to use our powers, and accordingly we have agreed to cease our anti-avoidance case.
Payments totalling over £1 billion are expected to be paid into the UK plan over the forthcoming months, and the plan’s trustee expects the proceeds to be sufficient to allow benefits to be secured outside the PPF. The plan provides benefits for almost 31,000 UK pensioners and deferred pensioners who worked for the communications giant.
Mike Birch, TPR’s Director of Case Management, said: “We welcome the start of payments following the settlement reached last year, which we believe gives the UK pension scheme a fair and proportionate share of the proceeds from the disposals of the Nortel group’s worldwide assets. We believe this is the best outcome in difficult circumstances, and brings to an end a period of uncertainty for the plan’s members.
“As well as highlighting the impact of Nortel’s insolvency on the members of the UK pension scheme, this case also resulted in an important precedent from the UK Supreme Court that FSDs are effective when issued against insolvent companies.”
- The Nortel Networks UK Pension Plan provides benefits for almost 31,000 UK pensioners and deferred pensioners who worked for the former telecommunications giant. Since the insolvency of the plan’s employer, the plan has been in an assessment period with the PPF. Initial payments to the group’s creditors have now begun and the scheme received its first payment in July.
- The trustee estimates that the plan should receive aggregate payments in excess of £1 billion as a result of the settlement agreement. The trustee hopes that the outcome for the plan will enable members’ benefits to be bought out at above PPF levels of benefits, but this is a complex task that will take several months to conclude. In the meantime, the plan remains in PPF assessment and members will continue to receive their pensions in accordance with the PPF’s rules.
- An FSD requires a target company to make a proposal for financial support for a pension scheme. This support could be in a number of different forms, such as cash, a guarantee or other security arrangements. Any proposal requires TPR’s approval before it is adopted.
- Nortel was a major multinational group headquartered in Ontario, Canada. A telecommunications and data networking equipment manufacturer, it was founded in Montreal, Quebec in 1895. At its height, Nortel accounted for 40% of the capitalisation of all companies listed on the Toronto Stock Exchange and employed 94,500 people worldwide having acquired other tech companies around the globe. Its major growth in the UK came with the acquisition in 1991 of STC plc.
- Total claims into the worldwide Nortel estate following its insolvency stood at approximately $12 billion including $3 billion in respect of the UK pension scheme.
- The Determinations Panel (DP) is a committee of TPR. It operates separately from other parts of the organisation, including TPR’s case teams. The DP has a separately appointed membership and legal support. This enables it to make independent and impartial decisions. The DP considers all the evidence before it and provides each party with reasonable opportunity to present their case. Members of the panel are not involved in the investigation process.
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the PPF; to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and, to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only).
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