The decision by P&O Ferries to ignore UK employment laws and summarily dismiss 800 staff without warning or consultation on 17 March has been widely condemned. It is a decision that is likely to continue to play out over the coming months, with disruption to ferry services, threats of legal action from the trade unions, Select Committee hearings and demands from Government.

P&O Ferries has been navigating choppy waters for some time. Matt Rodda MP, shadow work and pensions secretary, advised Parliament last June that the £146 million debt owed by P&O to the Merchant Navy Ratings Pension Fund (MNRPF) may trigger “serious problems” for the fund. Various news reports confirm that the MNRPF is speaking to the Pensions Regulator with a TPR spokesman stating “We are working closely with the trustee of the MNRPF in our role to protect pension scheme savers. We are not commenting further at this stage”. So what do P&O’s woes mean for the MNRPF members and its remaining employers?

Some background 

The MNRPF is a non-sectionalised (or last man standing), industry wide, multi-employer defined benefit occupational pension scheme, established for the benefit of British Merchant Navy ratings. During the fund’s lifetime, 240 employers have participated in it and agreed to be bound by the fund’s governing documents as amended from time to time.

In a last man standing scheme, where an employer suffers an insolvency event, the liabilities attributable to the pensionable service of the members of that employer do not transfer to the Pension Protection Fund. The insolvency of the employer will trigger a debt under section 75 of the Pensions Act 1995 (calculated as the cost of securing those liabilities with an insurer) but, where unpaid, the liabilities are apportioned across the remaining employers in the scheme.

The MNRPF was closed to new members and future accrual on 31 May 2001.  At the same time, the trustee introduced a Court-approved contribution regime which allocated legal responsibility for meeting the fund's deficit to 40 participating employers which, as at 31 October 1999, employed active members of the fund or persons eligible to join it. Under the regime, the other 200 historic participating employers had no obligation to contribute to the fund although 10 of them did so voluntarily.

This soon became unsustainable and in 2015, the trustee applied to Court again to approve a new contribution regime under which all participating employers, current or historic, could be made liable to contribute towards the fund's current deficit under amendments made to the MNRPF’s trust deed and rules. The new regime provided that:

  • Each employer (current or historic) would be liable for a share of the deficit equal to the proportion of the scheme's liabilities attributable to it, with the apportionment of liabilities calculated using a set actuarial methodology;
  • Credit would be given for all deficit contributions made by participating employers going back to 2001. This included current employers and historic employers who had paid voluntary contributions.
  • The new regime was implemented using a methodology devised and recommended by the trustee's covenant adviser.

What next?

Whilst P&O Ferries has paid £70m of contributions into the MNRPF under the 2015 contribution regime, it reportedly owes a further £146m. We do not know the precise terms of P&O’s agreement with the MNRPF but options available to all participating employers include paying their deficit contribution in one go, paying their deficit contribution in instalments (with interest) or reaching another negotiated agreement with the trustee, which could involve the granting of security or another contingent asset.

  • Unless P&O Ferries suffers an insolvency event or gives notice to pay its section 75 debt, its current liability to the MNRPF is for any outstanding deficit contributions imposed under the 2015 contribution regime;
  • The agreement reached between the MNRPF trustee and P&O Ferries will set out when those deficit contributions must be paid. If P&O Ferries is in breach of the agreement reached, the trustee will be able to take enforcement action and/or may enforce any security it holds (reports state that the MNRPF holds security over two of P&O’s ships);
  • To the extent that such enforcement action or any other event results in P&O entering insolvency, the MNRPF will have a claim against the company for its share of the MNRPF’s debt under section 75 of the Pensions Act 1995. The trustee will be able to enforce any security held in accordance with the terms of that security but to the extent the assets realised do not meet the section 75 debt in full, the MNRPF will rank as an unsecured creditor.
  • In the event that the MNRPF does not recover the full amount of P&O Ferries’ section 75 debt, the balance will become an orphan liability of the fund, and the obligation to fund those liabilities will fall on the scheme’s remaining employers.
  • Since 2006, P&O Ferries has been a subsidiary of DP World, which is majority owned by the Dubai Sovereign Wealth Fund and, ultimately, by the Dubai Royal Family. DP World has been heavily criticised for failing to pay the £146 m deficit owed by its subsidiary to the MNRPF. However, from a legal perspective, unless DP World has granted the trustee of the MNRPF a parent company guarantee, it has no direct liability to meet P&O Ferries’ liabilities to the fund. Therefore, the trustee has no recourse to the parent or the wider assets of the group.
  • TPR has power to issue DP World, as a person connected with P&O Ferries, with a financial support direction requiring it to put in place financial support in the event that P&O Ferries is “insufficiently resourced”.  It also has power to issue DP World with a contribution notice if it considers that it is party to an act or failure to act that meets one of four legal tests, being the main purpose test, the material detriment test, the employer insolvency test or the employer resources test. There are questions over whether these tests are met. Irrespective of the merits, taking such action will require significant time and resource so, for this reason, TPR will likely work with the trustee to see if a voluntary agreement can be reached with DP World. The extent to which the current trial by media may help or deter DP World from reaching such an agreement remains to be seen. We (and the scheme’s remaining employers) await further developments with interest.