Defined BenefitSep 18 2018

Kodak pension scheme likely to go to pension lifeboat

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Kodak pension scheme likely to go to pension lifeboat

When Eastman Kodak filed for bankruptcy in 2012 the KPP2 scheme was created for the company's UK employees and it became the owner of Kokak Alaris.

While the Kodak Alaris businesses, which make photographic supplies, are trading successfully, they will not produce sufficient returns in the longer term to meet the needs of the pension fund, which currently has a deficit of £1.5bn.

Nigel Moore, chairman of the trustees of KPP2 said that while the scheme could continue to pay pensions at the moment, "things will have to change in the future".

"The most likely outcome is that the plan will eventually move into the Pension Protection Fund," he said.

For the 7,797 pensioners of the scheme, their benefits will be paid in full by the pension lifeboat.

The 3,254 deferred members will receive 90 per cent of their benefits in the PPF, as long as they don’t breach the compensation cap, currently set at £35,257.

After Eastman Kodak filed for bankruptcy in the US, trustees of the old Kodak UK pension scheme – which would be moved to the pensions lifeboat - made an agreement to buy a number of businesses from the company, which was approved by TPR and PPF.

At the time it was believed these businesses would generate enough money to pay off some of the old scheme’s deficit, but not all of it.

The new scheme, KPP2, was set up and members of the old scheme where invited to join rather than moving to the PPF.

The new pension plan offered better benefits than the pensions lifeboat, but not as good as the old scheme, and members accounting for more than 90 per cent of the liabilities of the old scheme moved to KPP2.

The decision to move or not the current pension fund to the PPF is dependent on negotiations which are currently ongoing.

Mr Moore said Kodak Alaris had been asked to explore opportunities to sell some assets, if an attractive arrangement can be made.

He said: "If offers reflecting the true value of the business are not received, then ownership of Kodak Alaris will pass to the PPF who will manage the asset in the same way as other scheme assets that are acquired. 

"The PPF is experienced in doing this, for example it inherited a very substantial shareholding in Harworth Estates which it has kept and subscribed for further shares since it took ownership."

The scheme trustees will continue to work with TPR and the PPF on this matter over the coming weeks and months, he added.

Oliver Morley, PPF’s chief executive, said the pensions lifeboat has worked closely with KPP2's trustees, their advisers and The Pensions Regulator (TPR) on the future of the scheme and will continue to do so.

He said: "The new Kodak pension plan was a pragmatic solution which was not without risks. Those risks have been monitored since 2013 by the trustees and TPR.

"The controls that were put in place have worked as intended. Members of the KPP2 scheme can be assured that the PPF is there to protect their benefits."

A spokesperson for TPR said:

“We are working closely with the trustees of KPP2 as they review the scheme’s position.

“Kodak Alaris is trading successfully, however due to challenging market conditions it has not delivered enough cash and so will not be able to support the scheme over the longer term. Now is therefore the right time to consider the timing of an orderly entry of KPP2 into the PPF.

"It is also appropriate for the trustees to explore whether sale of the Alaris assets would achieve best value for the scheme or whether these should be retained by the scheme as income producing assets and, ultimately, transferred to the PPF. We will continue to work with the trustees to achieve the optimal outcome.”

Nathan Long, senior analyst at Hargreaves Lansdown, said members' journeys into the lifeboat of the PPF had been "delayed rather than abated".

He said: "The most important thing is that members are not worse off, despite this peculiar game of pension hokey cokey.

"Overall anyone in a DB pension scheme can have confidence that their savings will not simply disappear if the scheme gets into difficulty and it can act as a bedrock of income in their retirement."

maria.espadinha@ft.com