Now Rock staff face pensions wrangle

Aug 7 2008 By Adrian Pearson

NORTHERN Rock is locked in a battle over the best way to build up its pension funds. Fund trustees believe the bank is not yet strong enough to guarantee any investment shortfall.

They have written to the Pensions Regulator asking it to settle a dispute which arose after they moved pension funds into secure Government bonds following the run on the bank last year. These produce a guaranteed, but lower rate of interest than might be gained if the funds were invested on the stock market, which carries more risk.

Northern Rock, keen to minimise any potential shortfall which it is obliged to make up, wants the funds invested back in potentially more profitable shares.

But the trustees, who are concerned that the bank might not yet be restored to a healthy business, want Government guarantees before exposing pension funds to any such risks.

Both sides are trying to solve a £100m shortfall in the funds which threatens to undermine future pension payments.

The trustees, responsible for 8,000 pensions, have written to advise holders of their concerns.

In the letter signed by chairman Sir David Chapman, pension holders have been warned the bank cannot yet be relied upon to make good on a promise to back up any shortfall in the pension scheme, should the funds be moved to more risky but profitable schemes. His letter says the trustees, supported by expert advice, believe “the risks to the delivery of the company’s recovery plan in current market conditions are significant”.

Sir David’s letter adds: “The trustees therefore believe that it would be inappropriate to increase the level of investment risk within the scheme until such time as they are sufficiently confident in the company’s financial position.”

He adds that part of the problem arises from the Government’s reluctance to offer the pension holders, many of whom live in the North East, the same guarantees offered to savers after the run on the bank.

Nick Barton is a partner in Hogarth Partnership, which handles financial communications for the pensions fund.

He said: “One outcome, and it is just one option, is that the regulator could tell the company to make up some of the shortfall. And as it stands, the trustees do not feel they are being unreasonable, they have responsibility to ensure this shortfall is met and to consider the best ways of solving this.”

Former Northern Rock employee and pension holder Dennis Grainger said that despite mishandling of the bank by the Government, he was confident that “even they would not let their own employees’ pension funds go bust”.

Mr Grainger, who has been campaigning for a fair settlement for shareholders who lost after the bank was nationalised, said the risk could be a double blow to the many workers who also had shares in the bank. The two sides have until the end of this month to reach agreement before the Pensions Regulator becomes more involved in the dispute.

The Treasury has insisted decisions on the pension scheme “are for the Northern Rock board”.

Northern Rock said it remained in talks with trustees and was “not offering any further external comment”.