The case of Olympic Airlines has highlighted the difficulty for a pension scheme with an overseas employer in gaining entry to the PPF.
Most UK registered defined benefit schemes are "eligible" for the PPF and are therefore required to pay the annual levy. However, in order to actually obtain support from the PPF the employer in relation to the scheme must suffer a "qualifying insolvency event". These events are listed in the legislation and all concern UK insolvency proceedings. This means that foreign insolvency proceedings against an employer will not trigger entry to the PPF. It is necessary for the scheme trustees (as creditors) to effect secondary insolvency proceedings in the UK. This may prove impossible if the employer does not, at the time of the secondary proceedings, have an "establishment" in the UK carrying out genuine economic activity.
The Pensions Minister, Steve Webb, has (after some months of pressure) confirmed that the Government is "actively exploring whether it can amend PPF legislation on employer insolvency to enable members of the Olympic Airlines pension scheme to benefit from the PPF". We understand that this may well go wider, and that the Government is in fact looking at this issue generally, so that a similar situation does not arise in relation to other schemes in the future.
In the meantime, where a scheme which is eligible for the PPF does have an overseas employer, trustees should be considering the employer covenant and whether they ought to be taking any steps to put additional security in place for their scheme. This is not just a problem for schemes with a sole overseas employer but also for multi-employer schemes where at least one employer is overseas.
As the law stands, trustees cannot guarantee PPF entry will be achieved if an overseas employer particpating in a scheme is in financial difficulty. Trustees may need to take active steps to seek to commence secondary insolvency proceedings while it still has an establishment in the UK.
Our view is that the current legislation is in breach of EU law and that the Government will have to fix this issue.
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