UK - Federal Mogul's refusal to plug its UK scheme's deficit shows the government is powerless to stop foreign firms walking away from pension obligations, experts claim.
The beleaguered US auto component manufacturer – which is currently operating under Chapter 11 bankruptcy protection in the US – has vowed to make good any deficit in its American schemes.
But it refused to provide additional funding for the scheme at its UK unit, Turner & Newell.
As a result, administrator Kroll Butcher Phillips received High Court approval to remove 2500 members from the T&N Retirement Benefits Scheme.
Kroll says the move will protect the benefits of members without harming the prospects of other unsecured creditors.
If T&N is wound up, approximately 37,500 members will face “devastating” benefit cuts.
While a department for work and pensions spokeswoman refused to comment specifically on T&N, she insisted that schemes would not slip through the net of the Pension Protection Fund, revised priority orders, the introduction of full buyout costs and the Financial Assistance Scheme.
However, she conceded: “Like any state, we can only enforce the legislation in our own country.”
But Hewitt Bacon & Woodrow associate Kevin Wesbroom believes stronger, less principled foreign employers will still be able to walk away from their UK schemes.
He said: “This demonstrates the difficulty the government faces in trying to enforce the regulations under the new powers it has given the regulator.
“In this case, there is no suggestion of financial chicanery – but a more aggressive foreign parent could find ways to avoid its UK pension obligations.”
The DWP spokeswoman also pointed out that the T&N members might be eligible for the compensation scheme the government announced in May – although no decision had been made.
But independent expert Ros Altmann believes members should be compensated in full.
She said: “People are still not safe, they could fall through the net. Either way it is bad: if they are eligible, there will not be enough money in the scheme and if not, these people have been left high and dry.”
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