News

Footsie companies dip their toes into buyout waters
2008 has seen an unprecedented increase in DB scheme buyout activity as scheme sponsors seek to de-risk their balance sheets or potentially free themselves up for some form of corporate activity. Mining company, Lonmin (formerly Lohnro) became the first FTSE 100 company to offload its DB pension scheme to a buyout specialist, transferring its £78m, 118% funded scheme to Paternoster. Meanwhile, Norwich Union will assume the liabilities of the £1bn Friends Provident DB scheme, another FTSE 100 company, and, in a further innovation, will place a significant sum, the amount as yet undisclosed, into an escrow account as additional security for the scheme’s pensioners. Meanwhile, according to actuarial consultancy Lane, Clark and Peacock (LCP), at least 10 FTSE 100 companies have requested quotes from buyout specialists, seven of whom have assets in excess of £1bn. They believe that £10bn of scheme liabilities will be offloaded in 2008.

Elusive trustees
According to The Pensions Regulator, one in five pension schemes have difficulty in recruiting trustees as a result of the increasing complexity of the role and potential conflicts of interest.

VAT challenge
The National Association of Pension Funds (NAPF) and the £8bn multi-employer scheme, the Wheels Common Investment Fund, are to mount a legal challenge to the imposition of VAT on investment management services to pension schemes. If successful, pension schemes look set to claw back the £300m of VAT paid over the past three years, whilst the VAT exemption could be worth £100m in future annual savings. This action follows that successfully brought by the investment trust industry against Revenue and Customs in the European Court for Justice last November.

Pensions bill
£6.7bn was spent between August and March by the Personal Accounts Delivery Authority on consultants in setting up the National Pensions Saving Scheme (NPSS). The low cost NPSS, which over time could attract upwards of £100bn of funds under management, is envisaged to be self-financing with set up and running costs being charged to those auto-enrolled into the scheme when it comes into operation in 2012. Meanwhile, employers have
been given the go-ahead by the European Commission to autoenrol employees into group personal pensions from 2012. And finally …

Big in Japan
US-style variable annuities (VAs), often described as the “third way” between a conventional annuity and income drawdown, are set to make a big impact in the UK, in the same way they did when introduced to Japan. These flexible retirement savings products enable exposure to riskier assets such as equities but provide explicitly priced capital or income guarantees. The UK’s largest insurance companies are gearing up for product launches over
the next 12 months in a market that could account for 15% of the £14bn of pension assets that “baby boomers” converted into income in the UK last year.

All the threes, 33
The Trafalgar House DB pension scheme has split its £1.2bn asset pot equally into a liability matching portfolio, comprising cash, bonds and swaps and a return seeking portfolio, which invests in a myriad of alternative assets and absolute return products via 33 (yes, 33) investment managers.

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