The Nortel UK pension scheme is set to exit the Pension Protection Fund's assessment period following substantial recoveries from its sponsoring employer, which will allow the scheme to spend an additional £550m above PPF benefits.

Nortel Networks collapsed into insolvency in January 2009, with its European, US and Canadian entities making simultaneous insolvency filings in London, Delaware and Toronto. The UK company, Nortel Networks UK Limited, at January 2009, was the sponsoring employer of a large defined benefit pension plan with more than 40,000 members. With a buyout deficit of more than £2bn, the pension plan trustee, and the UK Pension Protection Fund, was one of the largest creditors in the global insolvency.

The business was hugely integrated, and there was significant difficulty associated with realising assets on a country-by-country basis. As a result, the various insolvency office-holders worked together to sell the key assets and business units on a joint, global basis, realising proceeds of more than $7bn. After several years of mediation, negotiation and litigation regarding the apportionment of these proceeds to the different global Nortel entities, a settlement was finalised in October 2016, and the US$7bn proceeds were distributed in May-June 2017.

Trustees of the UK scheme have now recovered sufficient funds to exit the PPF assessment period, which is expected to be in October 2018. The pension scheme will receive an estimated £550m to spend on benefits above PPF level for members, some who have had their benefits cut to date. Total insolvency recoveries are now anticipated at around £1.2bn, with approximately £200m expected over the course of 2018 and 2019.

PwC advised the trustees throughout the process and has been working with them for the last 10 years, its head of the pensions credit practice Jonathan Land said. “The turning point in the scheme’s fortunes was the decision by Judges in the US and Canada to allocate the $7bn disputed residual assets on a modified version of the pro rata* basis, as had been argued by the trustees in Court.

“The trustees should be very proud of their achievements and this excellent result. They could easily have stepped back when the group entered insolvency, but instead were determined to have an equivalent seat at the table to other stakeholders and secure a better outcome for the schemes’ members. It is particularly pleasing that the many years of hard work will enable extra money to be placed into the pockets of pensioners, who helped to generate Nortel’s assets.”

In addition, to help others in similar situations, the trustees of the Nortel UK Pension Plan have published their own perspectives on their recovery efforts, as well as a more detailed legal account of the developments in the Nortel case which can be accessed here.

A spokesperson for the PPF said: "We’re delighted with the outcome secured for the Nortel pension scheme. We have been closely working with the trustee and other parties since 2009 to reach an outcome that was in the best interests of scheme members and our levy payers. During this time Nortel pension scheme members have had the reassurance that they have been protected by the safety net of the PPF. We are pleased that a settlement was agreed that provided sufficient recoveries to offer members benefits above PPF compensation levels and ensure no claim on the PPF."

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