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Buyouts attracting interest
According to a recent PriceWaterhouseCoopers (PwC) survey of 193 Defined Benefit (DB) scheme sponsors, over one third are considering offloading their schemes to buyout firms with one in 10 expected to do so within the next five years. Indeed, despite the thorny issue of the pricing of such deals, all the indications are that the buyout market has grown at a spectacular rate during 2007. The market has also been given a helping hand by the buyout approach adopted by Citigroup and the Pensions Corporation, whereby they buy entire companies, sell off the operating business, so leaving the pension fund to be profitably managed. This they have done with Thomson Regional Newspapers and Threshers, respectively. Speaking of which…
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Hedging your bets…part 6
Yet another survey has shown that interest in Liability Driven Investment (LDI) strategies continue to gather momentum. The annual Pensions Week survey of 50 UK DB schemes found that a fifth of schemes were already employing LDI strategies, whilst a third of trustees believed their schemes should adopt such a strategy to remove unrewarded interest rate and inflation risk, with the scheme sponsor in many instances being the driving force behind this de-risking.
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GEC Trustees kept in the dark
Unbeknown to the Telent pension scheme trustees, the directors of the telecoms equipment manufacturer, recommended a £400m bid from the Pensions Corporation to acquire what remains of the former GEC conglomerate that became Marconi. The £2.5bn, 60,000 member Telent DB pension scheme eclipses the size of Telent’s operating business and is fully funded on an FRS17 basis. This approach for Telent coincides with statistics that show fewer companies are applying to the Pensions Regulator to obtain clearance on transactions that may potentially weaken the sponsor’s covenant. The Telent scheme trustees have since taken their case to parliament.
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Sainsbury’s Trustees play hardball
The Sainsbury’s Trustee Board, acting on behalf of the scheme’s 85,000 members, have played a potential deal busting blow to Delta Two, the Qatari investment fund, seeking to takeover the venerable J Sainsbury. Given the weaker sponsor covenant that would result if the takeover succeeds, the Trustee Board has demanded both a cash injection, close to £1.75bn, to the scheme (Delta Two have so far offered £1.46bn) and for the scheme to rank equally with, and a proportion to rank above, senior bank creditors in the event of insolvency. These demands taken together with the increased interest payments senior bank creditors would require as compensation for the weakening of their position, has resulted in Delta Two having to find an additional £500m.
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Lack of trust
When it comes to pensions, the government is not to be trusted, says a Department of Work and Pensions (DWP) survey. The survey showed that a whopping 51% of the population mistrusted the government over pensions, while employers came out on top as the most trusted retirement provision provider. Despite this, in a separate survey conducted by Alliance Trust, only 36% of company pension scheme members are confident that their scheme benefits will meet their needs during retirement. Consequently, 43% are placing reliance on assets such as property to finance their silver surfing years.
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Nice work if you can get it
Pension Capital Strategies revealed, in their recent longevity study of Britain’s top 100 companies, that as much as an eight year gap exists between the expected life expectancy of a British Land employee (a 65 year old male employee can expect to live for another 24.6 years) and one working for Whitbread (16.5 years).
The study also found that whilst in the recent past longevity across the FTSE 100 has been increasing on average by two years in every 10, it is expected that this will moderate to one and a half years over the next 20 years.
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Summer holiday
Shell UK, with its DB pension scheme in rude health, took the unparalleled step of taking a pensions holiday on 1 July this year: the first FTSE 100 company to do so since 2002. Despite contribution holidays, which were widespread in the ‘90s, contributing to the noughties DB pensions deficits crisis, pensions holidays could well reappear as sponsors’ seek to avoid the creation of scheme surpluses, which are difficult for the sponsor to access. That said, the Pensions Regulator has publicly stated its preference for schemes to maintain level ongoing contributions.
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Going down the tubes…part 2
In response to the story in last month’s Pensions Watch concerning Metronet and the tube strike, Transport for London (TfL) have pointed out that “[as] RMT members employed by Metronet had had their pensions guaranteed before they went on strike [in September]…TfL [therefore] managed the first ever pension fund rescue from administration that has been done in this country.” Pensions Watch is grateful to TfL for pointing this out.
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BT casting its net wider
The BT pension scheme, the UK’s largest defined benefit scheme, has announced plans to realise £240m of UK real estate assets to finance a £700m foray into foreign property. The BT scheme has been instrumental in moving a sizeable proportion of its assets into property and alternative investments.
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