UK - Sir David Chapman, chairman of the trustees of the £350m (€441m) Northern Rock final salary scheme, has announced talks with the company have come to a halt over "fundamental differences" on investment strategy.

In a letter to the scheme's members earlier this week, Chapman said an agreement could now only be reached through the involvement of the Pensions Regulator (tPR), though adding negotiations with the company will continue.

The trustees are worried if the current asset allocation of 93% of the scheme's £350m final salary assets continues to be invested in gilts - a strategy that has been in place since October last year - this will result in a "significant deficit", triggering substantially higher contribution rates.

Chapman outlined the trustees want an "appropriate form of security [from Northern Rock] to provide a cushion in the event of reductions in the market value of investments", while the company states the support of the government during the present period of the temporary public ownership should allow the trustees to take on additional investment risk now.

In February this year, HM Treasury confirmed the future of the pension scheme would depend on the new management team of Northern Rock, when Ron Sandler - former chief executive of Lloyds of London - was appointed executive chairman, and Ann Godbehere, former financial officer at Swiss Re, became chief financial officer. (See earlier IPE article: Sandler to decide fate of Northern Rock pension scheme)

The impasse comes as the bank on Tuesday reported a pre-tax loss of £585.4m for the first half of the year amid a continued gloomy outlook for the mortgage business. It is expected to remain in the red until 2010.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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