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Last Updated: Saturday, 10 July, 2004, 13:11 GMT 14:11 UK
Pension fund not enough
By Paul Lewis
BBC Radio 4's Money Box

Federal-Mogul has been struggling to avoid insolvency since 2001

More than 40,000 people could face a cut in their pensions if a major engineering firm fails to avoid insolvency.

They are employees and past employees of Turner & Newall (T&N), a motor engineering company whose brands include Champion spark plugs and Ferodo brake linings.

BBC Radio 4's Money Box programme has learned that the company's UK pension fund is well short of the money it needs to meet its pension promises.

People working there are worried
Former worker Norman Prime

T&N is owned by the US company Federal-Mogul, which has been struggling to avoid insolvency since October 2001 because of the cost of meeting asbestos-related illness claims from past employees.

If it does go under, the pension fund would face difficulties, even though the company says the fund meets the official "Minimum Funding Requirement".

'Not enough'

Norman Prime was a pension trustee for 17 of his 50 years with the company but keeps in touch with former colleagues.

He told the programme: "From the reports I have been getting, we are 250 million underfunded. And there was not any money going in because they had a pension [contribution] holiday for 18 years.

"People working there are worried."

If it is only 90% funded they would be unlikely to get more than 40% of their pension
Ros Altmann, pensions consultant

Ros Altmann, a pensions consultant who has studied the problems of pensions when companies go under, says that is not enough to meet the pension promises.

"The standard is that they have to be 90% funded and even at the 100% level, if the scheme were to wind up, the people who have not retired would be unlikely to get more than half their pension.

"And if it is only 90% funded they would be unlikely to get more than 40% of their pension. And most likely to get a lot less than that."

Assistance scheme

If that happened before April 2005 then the pensioners would have to seek help from a 400 million assistance scheme announced in May by the government.

That will help pensioners whose schemes get into difficulty before a new Pension Protection Fund begins in April.

The government has got to top up the 400 million if we want to help these people
Ros Altmann

But Ros Altmann has told the programme the money the government has promised is already not enough. And if more people need help it will be diluted further:

"The 400 million was definitely not enough to meet the pension promises of those affected before it was announced.

"With another few tens of thousands of people potentially in line for help it is even less sufficient. The more people there are, the less there will be per person.

"The government has got to top up the 400 million if we want to help these people properly and restore confidence in pensions."

Federal-Mogul told Money Box:

"The company has been in administration in the UK and Chapter 11 in the US since October 2001 and is making significant progress towards emergence from this position as a stronger company, better able to service its customers and meet its ongoing obligations.

"The T&N pension scheme is funded to meet regulatory requirements under the minimum funding requirement and Federal-Mogul's UK companies continue to contribute to the scheme."

BBC Radio 4's Money Box was broadcast on Saturday, 10 July, 2004, at 1204 BST.

The programme was repeated on Sunday, 11 July, 2004 at 2102 BST

Money Box



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