Northern Rock nationalisation creates pensions anomaly

The nationalisation of Northern Rock has removed concerns over the security of its pension scheme but may created regulatory anomaly around the scheme’s investments.

Pension schemes are not permitted to invest in their own organisation’s assets, however, Northern Rock trustees have moved 93% of its assets into gilts, which are government-issued debt securities. This would mean that the company is effectively investing in the scheme’s sponsor, which is illegal.†

Richard Jones, principal at Punter Southall, said: “If the nationalisation is only a temporary measure as has been suggested, it will be interesting to see whether or not the government seeks clearance from the Pensions Regulator when Northern Rock is returned to the public market and the trustees once again become dependent on the covenant provided by the bank itself.”

According to Punter Southall, the shortfall in the scheme had Northern Rock become insolvent would have been between £150m and £200m.