Thomas Cook pension schemes expected to enter PPF

James Phillips reports...

Thomas Cook’s four UK defined benefit (DB) pension schemes are expected to enter the Pension Protection Fund (PPF) as the company begins insolvency proceedings.

While a notification has not yet been submitted to the lifeboat fund, an assessment period is likely to begin in the coming days, during which the level of potential benefits will be assessed.

According to the holiday company’s latest annual accounts, the schemes had a combined £278m accounting surplus as at 31 December last year. Assets totalled £1.4bn, compared to liabilities of £1.1bn.

However, the scheme has an estimated £100m surplus on a section 179 basis, meaning it is possible the schemes could wind up outside of the PPF, although benefits may still be lower than if the company had continued to operate and support the scheme.

A spokesperson for the Thomas Cook Pension Plan, the largest of the four schemes, said the scheme had actively been involved in discussions with the company management and other stakeholders, but now events had gone “beyond the control of the trustees”.

They added: “The trustees remain focused on protecting the accrued benefits of the members of the Thomas Cook Pension Plan and are in continual dialogue with a number of parties, including the PPF and The Pensions Regulator, to agree next steps.”

Noting the PPF-plus surplus, they added: “The trustees therefore are hopeful that the PPF lifeboat will, once the assessment period has ended, not be called on and benefits in excess of PPF levels will be provided from outside the PPF.”

A PPF spokesperson added: “Following the confirmation that Thomas Cook has gone into liquidation, we await notification that the associated schemes have entered PPF assessment.

“We want to assure members of Thomas Cook’s DB pension schemes that their benefits remain protected by the PPF at what must be a worrying time for all concerned.”

The four UK plans were closed to future accrual in 2011, and £28m of cash contributions were made to the scheme in the year to 30 September 2018. A further £40m was pegged to be distributed across all of Thomas Cook’s schemes, in the UK and Germany, in the 12 months to 30 September this year, although it is unclear how much of this was paid.

Arc Pensions Law partner Rosalind Connor said the case demonstrates the need for long-term funding targets.

“The pension scheme has been looking to extend contributions even though the scheme was in an ongoing surplus,” she said.

“This is because there is a growing tendency for schemes (encouraged by The Pensions Regulator) to have a long-term funding target – i.e. even if the scheme is in surplus now, to look to the future where the scheme can be bought out, or at least not be dependent on the strength of the employer.

“In the light of events this morning, that would seem to have been wise.”