The UK’s The Pensions Regulator (TPR) has approved a deal for British vacuum cleaner manufacturer Hoover to move its struggling pension plan into a protection fund.
TPR has endorsed a Regulated Apportionment Arrangement (RAA) in relation to the Hoover (1987) Pension Scheme. The purpose of an RAA is to apportion an employer’s share of the debt that would otherwise be due to the plan. According to TPR, RAAs are extremely uncommon, and were introduced into legislation with the expectation that they would rarely be used.
As a result of the RAA, the Hoover employee pension fund will receive a cash lump sum of £60 million ($77.3 million) from the company, which the TPR said “was materially more than the expected outcome on insolvency.” The pension will also transfer into the Pension Protection Fund (PPF). The PPF was created to compensate members of eligible defined benefit pension plans when there is a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension to cover PPF levels of compensation.
“This deal led to a better outcome for the scheme than would otherwise have resulted from an uncontrolled insolvency, and maximizes the return for the PPF in very difficult circumstances,” said TPR in a statement. “It has also enabled the employer to continue trading.”
The Hoover (1987) Pension Scheme has approximately 7,500 members, of which approximately two-thirds are retirees and the remaining third are deferred members. As of March 2016, the pension had a deficit on a buy-out basis of approximately £500 million, and a PPF deficit of approximately £300 million.
In 2015, Hoover approached TPR with a draft application for an RAA to separate the pension plan from the company. At the time, however, they were unable to meet the criteria for TRP approval. TRP said it had not been provided with sufficient evidence that insolvency was inevitable without an RAA. Hoover withdrew the application.
Shortly after, the employer approached the PPF about the possibility of entering into a company voluntary agreement (CVA), where a company can reschedule some or all of its unsecured debts to allow it to trade out its financial difficulties. However, the CVA was rejected by the PPF because, among other reasons, the payment amount offered was insufficient.
Then, earlier this year, Hoover made another RAA proposal, and met with TPR, the trustee, and the PPF to consider whether an RAA had become an appropriate solution, and began negotiations over the next few months. The TPR said expert analysis and advice was provided by Hoover “confirmed that insolvency was inevitable within 12 months,” adding “we concluded that an RAA was an appropriate and reasonable course of action.”