Thomas Cook collapse

Thomas Cook collapse

Thomas Cook announced, in the early hours of Monday 23rd September, that it was to cease trading after last-ditch attempts to raise capital failed.  The company was the worlds’ oldest tour operator.

Thomas Cook began his international travel company in 1841 with a successful one-day rail excursion at a shilling a head from Leicester to Loughborough.  From these humble beginnings, Thomas Cook launched a whole new kind of company – devoted to helping Britons see the world.

The collapse of Thomas Cook will affect around 150,000 – 180,000 stranded travellers and 21,000 employees. The effort to rescue stranded travellers is the largest peacetime repatriation scheme in UK history.

Fortunately, the company is covered by the Air Travel Organisers Licence (ATOL). Introduced in 1973 as the popularity of overseas holidays grew, a number of high-profile travel business failures left people stranded overseas.  The UK Government realised consumers required protection.  ATOL currently protects around 20 million holidaymakers and travellers each year.

Additionally, those people who booked their holidays with credit cards – but not debit cards – will have additional protection.

As well as the disruption to customers and employees of Thomas Cook members of the company’s Final Salary pension schemes will also be concerned about how they will be affected.

A Final Salary or Defined Benefit (DB) pension scheme is a contract between the employer and employee that an income will be paid in retirement based on the employee’s salary and length of service.  Since companies cannot guartantee they will be able to meet these expensive liabilities at the time they are required to hold sufficient assets in place to fund these future income payments.

Thomas Cook has four DB pension schemes in the UK with total liabilities calculated at £1.1bn, although it also has scheme assets of £1.4bn, putting it in the enviable position of being in surplus.

If a pension scheme sponsor fails any DB pensions will go through an assessment period with the Pension Protection Fund (PPF) to determine whether the scheme needs to enter the PPF.  In instances where the scheme cannot meet member’s accrued benefits, the PPF guarantees 100% of pensions already in payment and up to 90% of deferred members’ right, up to certain limits

The Thomas Cook pension schemes are due to begin assessment under the PPF.  Due to the funding surplus within the pensions, the Thomas Cook Trustees are confident that the PPF lifeboat will not be called on.

Deferred members of the Thomas Cook Pension Plan, should take comfort that the scheme is fully funded with benefits backed up by PPF.  Further clarity will be provided once the PPF assessment period is completed which will take up to 24 months to complete.

The Thomas Cook situation shows us 3 learning points.  Firstly, make sure any holidays are  booked with ATOL protection.  Secondly, always use credit cards to pay for any holidays.  And lastly, everyone needs to have a clear understanding of their retirement provisions to be in control of their finances.

If you need any further advice on the back of this article, then please contact one of our Wealth Strategists on 0161 926 9350

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