Regulator: Kodak, UK Coal, and how we work with schemes

Directly addressing the needs of employers in this way, while continuing to encourage strong support for DB schemes, is a fundamental shift for the regulator, and reflects our new statutory objective to minimise any adverse impact on employer growth.

We have published a series of reports under Section 89 of the Pensions Act 2004 explaining how we’re prepared to work constructively with employers in a distressed state to facilitate rescue plans that maximise the value available to a scheme, and which may allow a business to continue trading.

In the case of the Kodak Pension Plan, we intervened when the US parent company entered Chapter 11 bankruptcy proceedings, putting the pension scheme at risk of losing both existing support from the wider Kodak group and ongoing contributions from its sponsoring employer.

In order to maximise the value available to the pension plan, a deal was agreed under which the trustees acquired some of Kodak’s cash generative businesses. In exchange, the Kodak group was released from its liabilities to the Kodak Pension Plan. 

Solutions that involve the removal of material sponsoring employer covenant will be extremely rare.

The UK Coal case illustrates that these solutions are not risk-free, and are not guaranteed to succeed. In 2012, we provided clearance in relation to a restructuring of the UK Coal group, which improved the outlook for the business and the associated pension schemes.

This involved substantially all of the economic interest in the group transferring from shareholders to the trustees of the schemes, enabling continued support from an ongoing sponsoring employer.

Sadly, a catastrophic fire in the group’s main Daw Mill mine in early 2013 prevented the business and the schemes from rebuilding their fortunes.

In a Section 89 report published this month, we explain how a further restructuring of the business was required to seek to maximise the value of the schemes’ interest, however, the changed circumstances meant that it was not possible for the schemes to continue to run. The pension schemes have now entered the Pension Protection Fund.

As a regulator, we will continue to have to make finely balanced judgments, based on facts that can vary greatly between cases.

Our work in recent years has demonstrated that where support is dependent on the restructuring or reorganisation of a sponsoring business, we are prepared to work creatively with trustees and sponsoring employers to achieve the best possible outcome.

In these situations, the chances of a successful outcome are greatly improved when we are in dialogue with all parties at an early stage, and that is something to which we remain highly committed. 

Stephen Soper is interim chief executive of the Pensions Regulator