UK Coal and the pension problem

The start of a wider change?

When the National Coal Board was privatised in 1994 to become UK Coal Plc, the government must have thought that was the end of its involvement in the business and, as a consequence, its expensive defined benefit pension scheme. One wonders, therefore, what rumblings in the Houses of Parliament have resulted from the recent restructuring of UK Coal, which has meant that the expensive pension scheme has been taken back into the public fold by transfer into the Pension Protection Fund (the PPF).

It is not that long ago that the Pensions Regulator, established by the Pensions Act 2004, was pushing firmly against what is known as "scheme abandonment", that is, a restructuring of a business extracting the pension scheme from the ongoing enterprise. At first glance, the restructuring of UK Coal may look like a reversal of that approach, but the detail of the restructuring suggests otherwise.

The UK Coal scheme is unique in many respects in that it is protected by legislation (the Coal Industry (Protected Persons) Pensions Regulators 1994) and comes with a lot of baggage. The desire to protect beneficiaries of the scheme must have been high on the agenda during the regulator's review of the proposal, together with the objective of saving jobs for the 2000 employees of UK Coal.

The restructuring proposal involved the transfer of the business into two new companies: one to hold the mining element of the business and the other to hold the brownfield development side. UK Coal's initial proposal involved all contributions ceasing once the scheme had gone into the PPF, with the scheme taking an equity stake in the brownfield development side of the business. This would have resulted in the effective dumping of all accrued and future liabilities of the scheme on the public purse with UK Coal continuing to trade, deficit free. It will come as no surprise that this proposal was rejected by the regulator.

UK Coal pleaded that the size of the scheme deficit (£900m on a buy-out basis) meant that if the PPF did not take the scheme in full, it would be forced to enter into an insolvency procedure, putting 2000 jobs at risk.

However, it appears from the regulator's report under s89 Pensions Act 2004 that during discussions, a potential creative solution was developed that improved the insolvency analysis and which meant that UK Coal would avoid an insolvency process and continue to fund the scheme through the PPF, thus improving the position for scheme members.

The end result has not let UK Coal off the hook and should not be seen in any way as a precedent, as the solution reached was very specific to the circumstances at hand and the fact that the regulator and the PPF were involved from the start. No dividends from the mining company to its shareholders until the scheme is fully funded and the scheme having a 75.1% equity stake in the brownfield development company means that the scheme controls the lion's share of the economic interest in the whole business.

This is certainly not a scheme abandonment and will be welcomed by all stakeholders in the UK Coal scheme. Although unusual for the PPF to take on a scheme when the business is continuing to be profitable, it should be encouraging to other businesses which may need to look for flexible ways to deal with a scheme deficit. And, of course, the beneficiaries of those schemes who can perhaps be more confident that the PPF will not simply give in to companies threatening insolvency if the PPF does not take on their pension liabilities.

Jessica Walker is a senior associate in the Restructuring, Bankruptcy & Insolvency group at Mayer Brown.

This piece first appeared on economia

Photograph: Getty Images

This is a news story from economia.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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