News

Purple haze
The first annual report of the Pensions Regulator and the
Pension Protection Fund (PPF), entitled the Pensions
Universe Risk Profile (Purple) and colloquially dubbed the
purple book, confounded the popular notion that the death
of the defined benefit scheme is nigh. The report noted
that of the 5,800 private sector defined benefit schemes
sampled, 1,808, or 43% weighted by scheme size, still
remained open to new members.

Out in the cold
That said, WH Smith and Smiths News joined the 3% of
schemes that have frozen the future accrual of defined
benefits for existing defined benefit scheme members.
WH Smith, with a £41m actuarial deficit, did so in an effort
to immunise the scheme from low investment returns and
rising longevity. Rentokil Initial was the first FTSE 100 to
close its scheme to existing members, this time last year.

It’s your M&S pension
Meanwhile, Marks and Spencer has vowed to keep its
non-contributory defined benefit scheme open to both
new and existing members. In addition to significantly
raising its regular cash contributions to one of the most
generous schemes in the country, M&S has also pledged £1.1bn of its freehold properties to a partnership with the pension scheme, which it will lease back for £50m per annum over 15 years, as an added means of addressing its £704m actuarial deficit.

Airline with a pension scheme attached?
British Airways, in a bid to tackle its defined benefit
scheme’s £2.1bn actuarial deficit, which remains the biggest for a FTSE 100 company as a percentage of its market value, made a one off cash contribution of £800m and increased its annual contributions to the scheme to £280m. Engineered as a quid pro quo to raising the scheme retirement age to 65, putting a cap on future pensionable pay increases and limiting annual increases in pensions in payment, BA seeks to eliminate its deficit within the Regulator’s desired 10 year timeframe. Only time will tell if BA is able to shake off its “pension scheme with an airline attached” tag.

Ringing in the changes BT is to pay a one off cash contribution of £840m and annual payments of up to £280m over the next 10 years into, what is, the UK’s largest defined benefit scheme. BT, with a market value of £26bn, faces with a larger than expected IAS 19 deficit of £3.4bn, principally as a resulting of adopting slightly more prudent longevity assumptions.

Not very civil The Civil Service is poised to dilute the terms of its defined benefit scheme to new entrants by basing benefits on career average earnings and raising the scheme retirement age to 65. This time last year, the Coop was the first large scheme to adopt career average earnings as the basis for retirement income and has since been joined by BA and Tesco.

Life means life David Foster, former chairman to the trustees of the Ericsson Employees Benefit Scheme, was the first trustee to ignominiously be handed a lifetime ban by the Pensions Regulator from acting as a trustee. Foster, who was also the company’s human resources director, had, without the knowledge or approval of the other trustees, convinced other members of the executive section of the scheme that they were entitled to greater benefits than appeared evident from the trust deed, despite this benefit enhancement being potentially detrimental to the other scheme members.

Drove my Chevy to the levee but the levee was dry (apologies to Don Mclean) The Protection Protection Fund (PPF) disclosed in its first annual report that as at March 2006 it faced likely claims amounting to £1bn. Since 2005, the PPF has only collected £500m in levies from defined benefit schemes. For 2007/08, the levy, which is principally based on the sponsor's assumed creditworthiness and the size of the PPF deficit, is likely to raise £675m.