Two sections of the Combined Nuclear Pension Plan have been moved out of the scheme by their sponsor this month. What are the reasons for companies leaving multi-employer schemes? 

 

Westinghouse Electric UK Holdings Ltd, the US-owned sponsoring company of the two sections, informed the trustees last September that it wanted to set up its own pension arrangement outside of the CNPP, to take on all of the assets and past service liabilities of the GPS WEC and Springfields Fuels 2 sections.  

 

The trustees of CNPP said they are satisfied that the new arrangements meet the legislative requirements to transfer assets and liabilities without detriment to the remaining sections of the CNPP. The transfer took effect from 1 July. 

 

The sections are all separately funded. In March last year, the Springfields Fuels 2 section was 87% funded and had a future contributions rate of 53.7% of pensionable salary. Its recovery plan end date, targeting 30 June 2025, was considerably sooner than that of other sections. The smaller GPS WEC section was fully funded last year at 104%. The scheme had a future contributions service rate of 47% of pensionable salary. 

 

At the end of November 2021, there was £314m in DB assets and about £40m of DC assets, according to Westinghouse. The company will continue to work with the existing administrators for the new pension arrangements. 

 

 

A spokesperson for Westinghouse said since joining the CNPP in 2010, the company and Springfields Fuels Ltd have developed material funding obligations under the CNPP.  

  

Westinghouse has explored moving away from the CNPP for a couple of years, deciding that “now is the appropriate time to make this commitment”, the spokesperson said, also bringing its company sponsored and previous pension life cover together under an excepted life trust.  

 

The decision to leave the CNPP appears to be at least partly motivated by governance considerations. The company said it felt that a dedicated scheme would enable it to be able to better manage the plan’s long-term funding strategy, “with a trustee focussed solely on our business, ownership structure and the covenant support provided by the group in its entirety”.  

 

Westinghouse has appointed Steve Southern at 20-20 Trustees to the new Westinghouse Electric UK Pension Plan as a professional corporate sole trustee. The CNPP trustee currently consists of three member-nominated trustees, three trustees from the Nuclear Decommissioning Authority, as well as three independent trustees. 

 

The decision to change the scheme set-up now was also down to the fact sufficient critical mass had been reached to put in place strategic derisking targets and bringing in experience to help the schemes comply with the Pensions Regulator’s planned single code and with the investment and funding strategy, the spokesperson said. 

 

The ability to offer salary sacrifice to employees equally came into play. “Our employees’ benefits are not impacted by this change but do bring the additional option to the company in offering salary sacrifice opportunities for active members – which we see as particularly attractive following the recent increase to national insurance contributions. This is only possible by moving to a new arrangement,” the company said.  

 

For DC members, the move to a separate scheme allows for more flexible options around transfers in and retirement options. 

 

 

Demergers in sectionalised DB schemes do not impact the financial obligations of the sponsoring company. They can therefore be more of “a governance thing, because it doesn’t really change your financial exposure”, said partner at law firm Sackers, Tom Jackman. 

 

Taking sections out of an industry-wide scheme would for example allow the sponsor to appoint the majority of the trustees of the board or a sole trustee. The employer might also have more say over how the scheme is administered. 

 

Leaving a non-associated last man standing scheme is much more complex than exiting a sectionalised scheme. While employers are at risk in such schemes as they can be on the hook for the orphan liabilities of other companies, an often very prudently calculated s75 debt falls due if they exit the scheme. “People try to avoid triggering a s75 debt like you try to avoid catching Bubonic plague, because it’s usually quite chunky numbers,” said Jackman. 

 

If the liabilities are transferred out into a separate DB scheme, the s75 debt is reduced but not usually eliminated, meaning the employer still pays on exit even if it takes on the liabilities. Therefore, "for most employers it’s a counter-intuitive result” he added. 

 

Despite the hefty payouts involved, a handful of employers have left multi-employer schemes. Trinity College in Cambridge left the Universities Superannuation Scheme in May 2019, for example. The asset rich college only had 98 members in USS and chose to move academics to a new scheme, saying it was concerned that the scheme could request all of its assets in a worst-case scenario. 

   

    

The exit of one of the strongest employers in USS raised questions about the scheme's covenant strength. At the time, the trustees denied that there was a material impact on funding or covenant, but they later proposed to amend the scheme rules so that the trustee could effectively veto an employer’s exit. 

 

Stronger employers do not want to “support the weaker employers in a multi-employer last man standing scheme” said Kevin Wesbroom, a professional trustee at Capital Cranfield. 

 

If there was an uptick in strong employers leaving last man standing schemes, it is likely that more trustees would bring in rule changes that mean trustee consent would be required, predicted Jackman: “We have seen some employers trying to get out of a scheme, not a lot but a few. If we started to see a lot of people doing that, I suspect some of the other industry-wide schemes would think about rules to protect themselves.” 

 

Do you think more employers will be looking to leave multi-employer schemes?

Kevin Wesbroom

Tom Jackman