Pension Protection Fund, the government-sponsored pensions lifeboat scheme, takes over responsibility for partially honouring pension promises
The retirement savings of 7,000 past and present mineworkers at UK Coal, Britain’s largest coal mining business, took a hit on Tuesday as the pit operating group responsible for repairing the pension scheme’s deficit of at least £450m sank into a long-anticipated administration.
But in a complex deal between the government, the Pension Protection Fund (PPF) and two sets of administrators, some 2,000 jobs have been saved, largely at two of the mining group’s three deep pits.
The third pit, Daw Mill, the site of a devastating fire in February, is to be permanently closed, the company confirmed, with 350 workers made redundant. Before the fire, a restructuring deal at Daw Mill had been expected to generate £100m in cashflows by the middle of next year for the group’s struggling pension scheme.
Despite years of financial woes, UK Coal still generates 6% of the nation’s electricity by supplying Drax in North Yorkshire and three other power stations in Nottinghamshire. Accounting for more than half the coal mined in the UK, the mines are still seen by many in Westminster as fulfilling an important role in near-term energy security requirements for Britain.
One source involved in the restructuring said the company had been “overwhelmed at how helpful government had been at every turn”. However, early plans to involve the Shareholder Executive investment quango in a rescue of UK Coal were ultimately ditched. The quango is already responsible for taxpayer holdings in such businesses as Royal Mail, Channel 4, Eurostar and the Royal Mint.
Meanwhile, the PPF, the government-sponsored pensions lifeboat scheme, has taken over responsibility for partially honouring the pension promises made by UK Coal before its demise.
After taking into account the value of brownfield development land, the likely hit to the PPF is estimated to be between £450m and £500m, according to independent pensions expert John Ralfe. That makes it the biggest ever deficit taken on by the lifeboat scheme, more than the £333m hit from the UK administration of telecoms equipment maker Nortel in 2009.
UK Coal pension scheme members who have not yet reached retirement will now have 10% wiped off the retirement value of the pension they have accrued. Meanwhile, weak inflation protection within the PPF means all scheme members can expect to see the value of their retirement savings further eroded over time.
In a highly unusual arrangement, the continuing operations of UK Coal will rapidly pass through the hands of administrators, re-emerging under a new company called UK Coal Production.
Although the new business will not technically be owned by the PPF, administrators from PricewaterhouseCoopers said the lifeboat scheme would “retain economic benefit through substitute debt instruments”. The size and maturity of these new obligations are not disclosed.
Among the assets in the UK Coal pension schemes – inherited now by the PPF – is a 75% interest in Harworth Estates, which owns brownfield land previously used for mining operations. The minority interest is held by stock market listed company, Coalfield Resources. This was, until a complex restructuring deal last year, an enlarged operation encompassing the mining operations of UK Coal as well as these property interests. At that time it went by the name UK Coal.
Sourced from http://www.guardian.co.uk/business/2013/jul/09/uk-coal-enters-administration-pension-scheme