When British travel company Thomas Cook collapsed last week after 178 years in business, it left not only thousands of travelers’ in limbo, but it did the same for thousands of employees who are members of the company’s pension.
The Pension Protection Fund (PPF), the UK’s safety net for defunct companies, said it would step in to help protect the pensions of participants in Thomas Cook’s defined benefit plans.
“We understand this is a very difficult time,” said the PPF in a statement, “but if you’re a member of a Thomas Cook defined benefit pension scheme you can be assured that your pension is protected by us.”
The company said the plan is now expected to move into the PPF’s assessment process. The assessment process, which can take as long as two years, will review the plan’s assets and expected liabilities to determine what level of pension benefits the plan will be able to pay in future.
During this time, the trustees will retain overall responsibility for running the plan, while members’ benefits will be paid in accordance with PPF compensation levels. At the end of the process, the plan will either transfer into the PPF, which would become responsible for paying benefits to all members, or the plan may be able to secure benefits at or in excess of PPF levels through an insurer if the plan’s funding levels are determined to be sufficient.
In a letter to members of the company’s pension plan, Thomas Cook said the liquidation of the company will lead to several changes to the governance and functioning of the pension plan.
“The plan is reasonably well-funded and we hope to be able to pay benefits in excess of the levels guaranteed by the PPF,” said Thomas Cook. “But we cannot be sure until the process is concluded.”
The company said that benefits secured prior to Sept. 23 will continue to be paid during the assessment period as normal, although the benefits will be in line with PPF compensation levels. Retired members over their normal pension age, or members who retired on the grounds of ill health, will continue to receive their pension in payment in full, however, possibly with lower levels of future pension increases.
Meanwhile members receiving pensions who had not reached their normal pension age as of Sept. 23, including members who retired early, will have their pension adjusted to 90% of the pension in payment prior to Sept 23. Members who retire during the assessment period will receive their full pension if they reached their normal pension age before Sept. 23, otherwise members who were below their normal pension age at that date generally receive 90% of their entitlement.
Thomas Cook also reassured its pensioners that the assets of the plan are separate from the Thomas Cook Group, and therefore the insolvency practitioners have no access to it. However, the company said the planned merger of the various pension plans it sponsors will no longer be in place, and each plan will go through the PPF assessment period individually.