Turner & Newall buyout calls PPF compensation cap into question

L&G has taken on the liabilities for 10,673 deferred and 19,333 current members following the Turner and Newall scheme’s exit from the Pension Protection Fund’s (PPF) assessment period.

Most of the 30,000 membership will benefit from the L&G buyout, but 33 members, whose original benefits suffered - with some losing as much as 70% - from the PPF compensation cap, are campaigning to have their original benefits restored, using the money in excess of that required to secure PPF benefits.

The matter has already been considered by pensions minister Steve Webb (pictured). He wrote to a representative of the 33 members in May this year, in a letter seen exclusively by PW, saying his hands were tied and he was unable to find a suitable solution for them.

Grenville Hampshire, a member of the scheme, claimed the legislation effectively punishes loyal service.

“I was with T&N for 30 years, so this legislation penalises those with long service and loyalty,” he said. “Most of the members retired prior to the 2004 Act when their pensions were protected by law.

“Some of those didn’t have any choice but to retire, given they were made redundant when the company was taken over by [US firm] Federal Mogul in 1986. Then the 2004 Act came in and was applied retrospectively, and the cap was applied.”

Under current legislation, a person who takes early retirement from a scheme before it enters the PPF assessment period is treated the same as someone who retires at a normal age.

They are subject to a compensation cap and may see their payments reduced, even if they have originally received larger annual payments.

This has resulted in some of the 33 members losing as much as 70% of their original pension payments, when taking the cap and lost accrued benefits into account.

Hampshire claims 90% of the original benefits could be restored to the 33 at a cost of £17 per each of the 30,000 members, per year.

The total cost would be little more than half a million, less than 1% of the existing £76m annual payments made to members.

According to some pensions lawyers, this could be provided by the independent trustee distributing any excess left over from L&G’s wind up exercise. In principle, the trustee does not have to treat all classes of member in the same way. Therefore provided there is good reason, they could award a greater value of the excess to one section.

But, a spokesman for the trustee said: “The law sets out how the trustee must apply the scheme's assets and is clear that we must use any money in excess of that required to secure PPF benefits for the benefit of all members.  There is the prospect of a small one-off uplift to all members’ annual pensions in due course – but we cannot use this additional money to favour one group of members over another."

Moreover, Hampshire is campaigning with the Early Retirement Pension Action Group (ERPAG), which includes representatives from other schemes including the Ilford Scheme, Heath Lambert and Uniq, to get the benefits cap removed if a scheme exits the PPF assessment period.

“We’ve made a representation to [pensions minister] Steve Webb to change the priority order so that if the scheme comes out of the PPF everyone gets their pension at the 90% level,” said Hampshire.

“We have a strong view that Steve’s an understanding guy and we think this is an opportunity for him to right an injustice which he did not create.”

However, in his response of May 7, 2011, Webb said, while he sympathised with the 33 members’ plight, he “had looked at a wide range of options in an attempt to improve the position [of the members] at a reasonable cost, and without being unfair to other people entitled to PPF compensation… [and] have reluctantly concluded that I cannot find a way forward”.