EMI Pension Fund Short

The trustees of EMI Group’s pension scheme have called in the regulator because new owner Terra Firma won’t accept that it’s short of funds.

Guy Hands’ private equity group, which took the English major private in a £4 billion deal during the summer, is insisting the shortfall doesn’t exist.

Terra Firma could be hit by the regulator’s demands for a big contribution if the trustees turn out to be right, according to Financial Times.

The pension trustees wrote to members at the beginning of October to inform them that months of negotiations with Terra Firma had proven fruitless and that they had now asked the pension regulator to step in.

"Despite its best efforts over a period of months, both preceding and immediately following the takeover, the trustees board hasn’t been able to reach agreement with the new owner regarding the funding of, and the security available to, the fund from 1 April 2006," the trustees wrote.

"Terra Firma is entirely confident that the scheme does not require an amendment to its contribution rate," a spokesman for the private equity group told the FT.

The trustees say the pensions regulator will have to step in and resolve the matter according to U.K. legislation.

So far, the paper explains, the regulator has not had to resort formally to using its powers to impose a set of technical provisions – assumptions to be used in measuring assets and liabilities – and a schedule of contributions on companies that can’t agree with their pension trustees.

The threat to use those powers usually brings both sides to an agreement. The EMI case is thought to be unusual because of the hard line taken by Terra Firma, and the company could be the first to be on the receiving end of tough new powers.

The regulator has been concerned about the safety of pension promises made to members of schemes that have been acquired in highly leveraged deals.

Trustees to the Alliance Boots and Sainsbury’s pension schemes have received support in their efforts to secure funding far in excess of the shortfalls shown on company balance sheets.

The last annual report for the EMI scheme showed a March 31 deficit of £7 million on total liabilities of £962 million.