TPR reveals changes in approach following Kodak case

The Pensions Regulator (TPR) has admitted it needs to make changes to its approach when dealing with ailing pension schemes following the Kodak Pension Plan (no. 2) (KPP2) case.

In a letter responding to Work and Pensions Committee chair, Frank Field’s, letter published on 19 September 2019, TPR chief executive, Lesley Titcomb, said that TPR had learnt lessons from its handling of KPP2 that has led to changes in its approach.

Frank Field’s letter came after it was revealed that it was likely the Kodak pension scheme would enter the Pension Protection Fund (PPF) following its parent company’s, Eastman Kodak Company, fall into insolvency.

TPR and KPP2 trustees put their faith in the performance of Alaris, a business acquired by the scheme, as it was predicted to “generate materially greater value for the scheme than any likely alternative”.

However, Alaris did not perform as projected, and TPR has conceded it could have done things differently.

In the letter, Titcomb stated: “The innovative solution in the Kodak case was finely balanced at the time and carefully assessed with the benefit of the due diligence carried out for the trustees.

“However, our approach has evolved and today we would not approve a restructuring deal which left a scheme so exposed to the performance of one investment.

“It was our normal practice at this time to rely on professional advice provided to trustees.

“We have reviewed our decision to do so in this instance. An alternative to scrutiny of the trustee’s due diligence would have been to commission our own independent advice.

“We acknowledge the value of advice in this type of commercial situation and have since modified our approach in such cases, commissioning our own third party advice as appropriate.”

Titcomb also conceded it would have to make further changes following the outcome of KPP2 and from the lessons it had learnt from other recent cases.

In the future, following a regulated apportionment arrangement, TPR will only agree to “a scheme continuing without a substantive sponsoring employer with a governance framework being put in place which enables TPR to monitor the situation and, if necessary, to trigger the scheme’s wind-up”.

Additionally, schemes that continue without a substantive sponsor must have “strong, sustainable funding arrangements and other measures in place that limit the exposure of the PPF”.

Titcomb continued: “There needs to be a very compelling case for trustees to take ownership of a business and to rely upon a small number of investments for future scheme funding and they need to have the ability to hedge their risks.

“In addition to challenging the advice and due diligence received by trustees, where appropriate TPR should commission its own due diligence from a third party adviser.”

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