Pensions - Frequently Asked Questions

The Trustee Board
Nortel Networks UK Pension Plan
Q & A December 2008

The Trustee Board have put together this Q&A for all members of the Nortel Networks UK Pension Plan (the “Plan”). Most of you will have received the Summer 2008 issue of Newslink which contained a lot of information but we are aware that in the current climate many of you may have additional questions about the Plan. We hope that this Q&A will address most of those questions but please do not hesitate to contact us if further information is required –

Q1. Is Nortel Networks UK Limited (“NNUK”) still contributing to the Plan?

A. Yes. NNUK has maintained its annual contributions of £85m into the Plan since April 2005. This is made up of ongoing accrual for active members and deficit contributions. The Trustee is currently engaged in negotiations with NNUK regarding funding as part of the triennial actuarial valuation process as at 31 March 2008. This process should be concluded by the end of June 2009.

Q2. How safe are the Plan assets?

A. The assets of the Plan are held completely separately from those of NNUK and its overseas parent Nortel Networks Limited (“NNL”). These assets are ring fenced to provide pension benefits to the members of the Plan. They cannot be called upon by any creditors of NNL or its subsidiaries under any circumstances.

Q3. What responsibility, if any, does NNL have for the Plan?

A The day to day running of the Plan is the responsibility of the Trustee. NNUK is the Principal Company named in the Trust Deed and Rules and therefore also has responsibilities under the Trust Deed and Rules. Under the terms of the Funding Agreement with NNUK dated 21 November 2006, NNL guarantees the payment of the £85m annual contributions to the Plan mentioned in Q1 above.

Q4. I have seen differing values for the Plan deficit – which one is relevant ?

A. The Summer 2008 issue of Newslink described the different ways in which the Plan funding is calculated – please check those details for further information. If you do not have a copy to hand then please use this link

Q5. Share prices have fallen heavily in 2008 – will this directly impact the value of the Plan assets ?

A. The deficit in the Plan will usually worsen if share prices fall, but because the Plan’s assets are split mainly between equities (shares) and bonds (which are usually less volatile) this means that the total asset value is generally less volatile than headline market indices. Another consideration is that the Plan’s investments are long term in nature to provide benefits over many decades so variations in timescales of a year or two are of less significance provided that share prices revert to more normal levels over a longer timeframe.

Q6 If the Plan is in deficit can the Trustee force NNUK to make up the deficit immediately?

A. There is no provision in the Trust Deed and Rules that allows the Trustee to demand an immediate payment from NNUK to correct the deficit. Even if there were, exercising such a provision would probably damage NNUK and in so doing, the interests of all Plan members. Both the Trustee and NNUK have to work within the framework set out by the Pensions Regulator which expects the two parties to agree a funding plan that will be executed over a period of several years. In our case the current funding negotiations must be completed by the end of June 2009 and the Pensions Regulator would only become involved if this timescale was not met or it was not considered that an appropriate funding arrangement had been agreed.

A number of questions have been asked about the Pension Protection Fund which was set up in 2005. In case you are not familiar with its provisions these have been summarised in the answers below. These answers are given in good faith and result from interpretation of information published on the Pensions Regulator and Pension Protection Fund websites. Whilst every effort has been taken to ensure accurate information is given it must be assumed to be for guidance only and not a definitive statement of entitlement or the law.

Q7. What rights do the Trustee and Plan members have in the event of a serious change in circumstances of NNL or NNUK?

A The Pensions Act 2004 established the Pensions Regulator as the regulatory body for work based pension schemes in the UK. The key objectives of the Pensions Regulator are 1) to protect the security of members’ benefits, 2) to promote effective administration of the schemes and 3) to reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund (the “PPF”).
An event which is, or could be, materially detrimental to the ongoing viability of a defined benefit pension scheme is referred to as a “Type A event”. Type A events could include corporate events such as takeovers, mergers, acquisitions, disposals, restructuring or an employer ceasing to trade or becoming insolvent.
As soon as NNUK becomes aware of the expected occurrence of a Type A event then it has agreed to notify the Trustee. The Pensions Regulator also expects the Trustee to be involved in any negotiations to the extent that the operation of the Plan is adversely affected. NNUK and the Trustee would have to share information and take steps wherever possible to protect the Plan. The Trustee is obligated to protect members’ interests in the Plan in accordance with the law and the Trust Deed and Rules and will take appropriate professional advice in this regard.
Clearance for a Type A event may be sought by either NNUK or NNL from the Pensions Regulator who will look for evidence that NNUK has involved the Trustee and, where appropriate and necessary, action has been taken to mitigate any adverse effect on the Plan.

If NNUK becomes insolvent then members of the Plan would be eligible for compensation from the PPF subject to their rules and the Trustee would commence the process by entering the ‘Assessment Period’. This will normally be completed within two years during which time normal pension benefits would continue to be paid. Note that it is possible the Plan will be allowed to wind up outside the PPF which would mean the Plan has been judged capable of continuing to provide its usual benefits. Further details of this process and possible outcomes can be found at:

Q8 How is the PPF funded and does it cover the Nortel Plan ?

A. The PPF is funded by annual levies paid by eligible final salary pension plans and assets of other schemes already under PPF control as a result of employer insolvency. The Plan is an eligible plan and NNUK has been paying the required annual levy since April 2005.

Q9 What level of benefits does the PPF provide?

This reply assumes that the Plan has been accepted into the PPF following the Assessment Period and hence the Plan has not been allowed to wind up outside the PPF- refer to the link at the end of Q7.

A. The PPF provides different levels of compensation depending on whether you are in receipt of your pension and over normal pension age for the scheme. Normal pension age is defined as the minimum age at which a member can start to receive pension benefits without incurring a reduction for early retirement - this is 60 in the case of the vast majority of members of the Plan.

For Members OVER Normal Pension Age at the Assessment Date: PPF compensation will be 100% for all members whether or not they are actually in receipt of a pension at that time.

Ill Health and Spouse/Partner Pensions: 100% compensation will be paid if you are receiving a legitimate ill health pension or you are a spouse/partner etc who was already receiving a pension as a result of the death of a member. Note that ill health pensions may still be subject to future health reviews

For Members UNDER Normal Pension Age at the Assessment Date: PPF compensation for members below the Plan’s normal pension age (whether or not you are actually in receipt of a pension) will be up to 90% on reaching normal pension age based on your accrued pension at the start of the ‘Assessment Period’ (see Q7 above). Note that further reductions apply for early retirement and in addition compensation is subject to a cap which is recalculated annually.
By way of example, between April 2008 and March 2009 this cap at age 60 is £27,945 representing compensation of £25,151 at the 90% level.

Upon the Death of a Member: Surviving spouses/partners will normally receive 50% of the compensation being paid to a member. If a member was not yet in receipt of compensation then the member will be treated as having reached normal pension age the day before his/her death and spouse/partner compensation will be 50% of what the member would have been entitled to.

Treatment of AVC’s: The fact that a pension in payment may include an element relating to a member’s AVC fund is largely irrelevant in terms of current or future payments although the manner of payment of this element may change. If a pension has not yet been taken then a member’s AVC fund will not be taken into the PPF and the member will be able to use that fund to purchase further pension benefits on the open market.

Future Increases: Note that there will be no increases to pensions in payment except in respect of Retail Price Index (“RPI”) inflation for that part of pensionable service from April 1997 onwards and even this element will be subject to a maximum increase of 2.5% per annum. For pensions in deferment compensation will increase by RPI but subject to a maximum increase of 5% per annum (this is expected to be reduced to 2.5% per annum in relation to service accrued from April 2009). However, the compensation then paid at normal pension age is still subject to the 90% figure and the overall cap at that time.

The following is a link to a leaflet from the PPF website on this topic which describes the different levels of compensation and gives more examples which may better reflect your own personal circumstances.
PPPF leaflet

The following leaflets may also be useful – if any of the links do not work then please let us know and use the following link to find their new locations
Pension Protection Fund website

How is Compensation Calculated

Early Payment of Compensation

Compensation for Survivors and Children

Compensation and Divorce

We suggest you check out other parts of this site for more detailed information.

In addition, the Pensions Regulator website contains lots of information about the work of the Regulator and detailed information for pension plan members.

Q10. I am not yet in receipt of my pension, should I transfer my benefits out of the Plan now ?

A. This will depend on your own individual circumstances and you should always take independent financial advice before making any decision on such action. Neither the Trustee nor NNUK can provide advice on your personal or financial circumstances. To find an independent financial adviser go to and type in your post code. This will give you a list of IFAs in your area.

Q11. In the event that the company gets broken up and effectively ceases to trade is it better to be an existing pensioner ?

A. The key driver for the level of PPF compensation is whether or not you have reached normal pension age for the Plan – please refer to the full text of the answer to Q9

Q12. Does the Nortel Pension Fund loan shares to third parties ?

A. This activity is known as ‘securities lending’ and the Trustee does not currently lend securities to any third party. However, the use of securities lending and a whole host of other financial instruments may be utilised by the Trustee at some point in the future as part of an overall investment strategy. Investment strategy is the sole responsibility of the Trustee and decisions are only taken after receiving the appropriate level of professional advice.


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