Pension Protection Fund

The fund which protects UK Pension schemes in the event of their insolvency. Of particular interest where a UK Pension Fund is party to an ISDA Master Agreement, because the PPF has wide discretionary powers to set aside contracts it doesn't like.

As a result much discussion around an Additional Termination Event specifically targeted at UK Pension Funds. See, for example, the PPF's proposal for a PPF Event ATE.

A solution was proposed from within the industry suggesting the inclusion of standard wording in agreements between the trustees and counterparties, without involvement of the PPF at that stage, and a consultation with stakeholders was commenced in March 2009. Following discussions with stakeholders, the following wording is proposed:

PPF Event: It shall be an Additional Termination Event (and Party A shall be the Affected Party and all Transactions shall be Affected Transactions) when:

(a) the Board of the Pension Protection Fund (“PPF”) approves under section 144 of the Pensions Act 2004 (the “Act”) a valuation under section 143 of the Act which verifies that Party A’s protected liabilities (within the meaning of section 131 of the Act) exceed its assets;

(b) the PPF determines under section 152(2) that it must accept responsibility for the Scheme; or

(c) the PPF approves under section 158(3) of the Act an actuarial valuation which verifies that Party A’s protected liabilities exceed its assets;

provided that in each case there shall be no Additional Termination Event if the PPF prior to termination by Party B has executed and issued a deed to Party B that it will not, following the issue of a transfer notice pursuant to section 160 of the Act, use its powers under section 161 of the Act (or any regulations made thereunder) to disapply or amend any terms or conditions of this Agreement or terminate this Agreement (unless such disapplication, or termination is permitted under the express terms of the Agreement).

We would strongly encourage trustees and managers to adopt this wording in ISDA contracts which they enter into or which are entered into on their behalf by their fund managers.

Note Party B is the Bank in this case.