The Economic Secretary to the Treasury (John Glen)
I can today confirm that I have laid a Treasury Minute, informing the House of the contingent liability that HM Treasury has assumed in relation to the transfer of sponsorship of the Bradford & Bingley plc (B&B) employer defined benefit pension scheme and the NRAM employer defined benefit pension scheme (the “Schemes”) from B&B and NRAM, respectively, to UK Asset Resolution Limited (UKAR).
UKAR and the trustees of each scheme (the “Trustees”) have agreed that the sponsorship of both Schemes should be transferred from B&B and NRAM to UKAR.
The contingent liability takes the form of a credit support deed (a “CSD”), entered into by HM Treasury and UKAR in respect of each of the Schemes, which will provide comfort to the Trustees that, in the event UKAR is unable to meet any payment obligation in respect of one or more of the Schemes, HM Treasury will provide UKAR with sufficient funds to meet such payment obligation. The remote maximum contingent liability possible under the CSDs together is estimated at c. £1.4 billion, based on the current mortality assumptions and discounted defined benefit obligations of the Schemes. This would only crystallise in the highly remote circumstances where the value of assets in both Schemes fell to zero and HM Treasury became liable for all liabilities under each scheme. Given that the majority of assets in the Schemes are held in gilts and the expectation that each scheme will be in surplus at the time of transfer, this scenario is considered highly unlikely.
As the Schemes will be in surplus at the time of transfer, UKAR is not expected to make any additional payments to either scheme until at least the next triennial valuations in three years’ time. In the light of this and the fact that UKAR will be funded via the usual supply procedure, HM Treasury considers it unlikely that the CSD will be called upon.
The CSD will remain in place for as long as UKAR remains the sponsor of the Schemes. It should be noted that HM Treasury, as the ultimate owner of B&B and NRAM, already has indirect exposure to this risk. An existing guarantee given by HM Treasury to the B&B pension scheme trustees will remain in place following the transfer of the B&B pension scheme to UKAR.
The transfer of sponsorship will not affect members’ benefits, there will be no impact on members’ accrued rights, and the relevant trustee board of each Scheme will remain unchanged following the transfer of sponsorship to UKAR.
I will update the House of any further changes as necessary.
[HCWS1553]