A 'loophole' in the pension system has been used again to shed pension liabilities as the question over who should stop the practice continues to rise. This time, however, it's a public body, not a private equity firm in the spotlight. Pension Funds Insider reports how, in an effort to promote London, City Hall leaves some of its own Londoners without a pension

In his 2008 Manifesto on seniors the Mayor, Boris Johnson, pledged that if elected he would "work to improve our city for all Londoners, including the more than one million pensioners who live in the capital". Unfortunately Johnson did not manage to protect his own future pensioners once he was in office.

In an effort to optimize the promoting of the capital, City Hall used a £56m pot granted for four years to bring Visit London, Study London and Think London together in London & Partners (L&P). The aim of this takeover was "to create one single promotional agency for London that can speak with one voice, vision and mission to all audiences in the UK and internationally".

The way this merger was implemented however is now under scrutiny as the 200 employees of one of the agencies, Visit London Limited, have been left without a pension scheme. The employees transferred but the pensions stayed – L&P refused to take over the pension liabilities.

The Visit London-part of the British Tourist Boards' (BTB) pension scheme, under which Visit London falls, is now facing a deficit of nearly £500,000. Visit London itself had to go into administration when it could not meet the £9m it needed to wind up the scheme after L&P refused to take over all the liabilities.

Although the Pension Protection Fund (PPF) is likely to pick up the liabilities this will almost definitely result in the staff losing over 10% of their final benefits.

Two weeks ago Pension Funds Insider reported on a similar case, that of Silentnight and H.I.G. The latter, a private equity firm looking to get a good deal, has been accused by some of using a loophole in the law to leave Silentnight's pension liabilities behind. 

"Both sponsoring employers went into administration, both schemes are heading to the PPF, and more interestingly, in both cases valuable parts of the employer have been put into a new structure to live happily on, now without any pension obligations, benefiting some stakeholders of the original business," a senior consultant working in the City of London told Pension Funds Insider.

The consultant says the case "just didn't feel right, especially the way the organisation's pension obligations were handled in the restructuring."

He also added: "If Visit London is allowed to get away with this action of pushing its pension scheme to the PPF, this would set a fairly dangerous precedence. Public sector cuts will affect the funding of many similar organisations in the UK. But cost cutting and rationalisation should not mean stopping funding pension promises made previously by public sector organisations and expecting the PPF – a fund that is primarily funded by the private sector – to take on the liabilities."

When asked to comment on this latest case the Pensions Regulator said it was looking into the matter but could not formally answer any questions.

However, in a letter to the London Assembly's Economic, Culture and Sport Committee, the regulator expressed "significant concerns" and said the decision appears to "detrimentally affect the likelihood of full benefits being received by members".

"Despite a clear explanation of the impact on members no party took steps to prevent this situation from arising," the regulator said. The regulator also indicated to have started an investigation into the case which should determine whether or not one of the parties might have been consciously avoiding their responsibilities. 

The letter was sent on 17 May, so that its contents could be taken into account at a hearing launched by the London Assembly to investigate Visit London's move into administration. The outcome of the investigation should be known on 21 June and should give clarity regarding focus on the decision making process and the consequences for creditors and pension holders.

In the meantime, the Mayor has said that at the time he had been relying on advice from his former Chief of Staff but would look into the matter again to find a "fair solution".

Dee Doocey AM, chair of the committee said, "Scrutinising the Mayor's promotional agencies is a core part of the Assembly's remit and questions remain about the way Visit London went into administration.

"In particular we aim to shed more light on the way decisions were made at London & Partners that led to the collapse of Visit London and the consequences for pension holders and creditors"

The trustees of the BTB pension scheme commented on the case in a statement saying that they "have been tireless in their efforts to engage with both the Greater London Authority and L&P with regards to the position of Visit London's former employees and their pension arrangements".

They further say that the trustees played no part in L&P's decision not to participate in the BTB pension scheme. "[The decision] has meant that benefits to those former employees stopped accruing. It is also important to note that the trustees did not have the legal means of stopping a transfer of staff from Visit London to L&P taking place."

A spokesperson for the trustees said they have come out of all the talks stronger. "Naturally", a statement issued by the trustees says, "the BTB pension scheme will continue to work with their advisors to ensure the best possible outcome for all of their members as circumstances allow, and will keep all members fully informed of relevant developments."

First published 15.06.2011

azeevalkink@wilmington.co.uk