The chairman of the Work and Pensions select committee has written to the Thomas Cook pension scheme trustees, questioning why they were demanding annual funding payments were part of a rescue deal when its pension funds had a surplus.
FTAdviser reported on Monday that due to the collapse of the 178-year-old tour operator, its four defined benefit pension funds would enter an assessment period with the Pension Protection Fund.
The UK schemes, which were closed to accrual in 2011, had a surplus of £278m in 2018, according to Thomas Cook's annual report.
But the holiday company was making deficit repayment contributions to the Thomas Cook Pension Plan of £28m a year until 2020, which will now be stopped.
According to media reports, the trustees of the scheme were demanding that payments of £25m a year would continue to be paid to the pension fund, as part of negotiations to save Thomas Cook that took place at the beginning of September.
In his letter to Steve Southern, chairman of the trustees of the Thomas Cook Pension Plan, Frank Field questioned why the repayments request was made.
He said: “The latest annual accounts show a large surplus for the scheme and the most recent triennial valuation, in 2017, showed a significant improvement in funding levels.
“The chief executive of The Pensions Regulator recently told the committee that ‘the best support for a DB pension scheme is an ongoing trading employer’.
“Why did trustees reportedly request £25m ongoing annual funding for the scheme form part of any deal?”
According to Rosalind Connor, partner at Arc Pensions Law, it was a wise decision for the trustees to have a repayment plan in place.
She said: “The pension scheme has been looking to extend contributions even though the scheme was in an ongoing surplus.
“This is because there is a growing tendency for schemes (encouraged by TPR) 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.”
Mr Field is also seeking assurances that the scheme will have enough assets to secure member benefits in full, and above the PPF level.
The pensions lifeboat pays 90 per cent of a scheme member's benefits if they have not reached the normal retirement age of the scheme when they are transferred into the PPF.
In a statement earlier this week, the trustees noted it is estimated that the various Thomas Cook UK DB schemes have a surplus of approximately £100m more than are currently expected to be required to secure benefits with the PPF.
They said: “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.”
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