The Pension Protection Fund opens immense possibilities for cash-strapped insurers, says Elliot Lane
' Heath Lambert is the talk of the market this week.
Discussions surrounding the broker usually focus on who is leaving or joining the company, or what new business it has won.
However, it pulled off a coup last week that could change the face of pension funds and help other companies to start to plug the pensions black holes that are dragging them down.
Under a deal with the pensions regulator, Heath Lambert will dump £210m in pension liabilities on the government.
Well, on 6 April the government opened a lifeboat scheme to tackle the Titanic-like state of the UK's final salary pensions scandal.
The Pension Protection Fund (PPF) will pay pensions to workers who lost their final salary scheme savings after their employers went bust with a pension funds deficit.
The PPF will pay workers up to £25,000 a year. Pensioners will get 100% of what they were promised, while employees still working will receive 90%.
The PPF gets its money in two ways. One is a levy on all companies that have final salary pension schemes and the other is by taking whatever assets are left in the pension schemes of the companies coming into the fund.
The regulator has to screen the proposals made by companies with appalling final salary deficits to protect the PPF from becoming abused or unstable (very much like Lloyd's Central Fund).
The regulator will not give clearance if it thinks the changes are being used by companies to offload pensions promises.
But last month at the National Association of Pension Funds conference, regulator chairman David Norgrove surprised everyone by telling delegates that he would allow companies that are viable but suffering crippling payments in covering a giant pension fund deficit to shove liabilities on the PPF.
They can usually do this by becoming insolvent, and then starting again with a phoenix company in which the PPF would take a stake of up to 30%.
Heath Lambert is currently in discussions with the PPF. It has put Heath Lambert Management into administration, transferred staff to Heath Lambert and had its pension deficit - £210m under FRS17 accounting measures - set aside.
Heath Lambert has now asked the PPF to consider whether it is eligible to apply for assistance. The PPF has 28 days to come to a decision.
The precedence this deal sets is enormous for our industry.
It raises questions as to whether a government agency should take a financial stake in a private company.
The opportunities available are also immense. One company that immediately springs to mind is Royal & SunAlliance (R&SA), which has a £500m pension deficit.
If R&SA could pull off a similar deal then the reported bidding war ready to take place could heat up substantially. IT