Sterling fall benefits foreign sponsors
UK - The falling value of sterling represents an opportunity for foreign sponsors of defined benefit (DB) pension funds to take action on scheme deficits, according to consultants Punter Southall.
The decline in the value of Sterling, which hit a record low against the Japanese Yen and a 7 and a half year low against the US Dollar last week and has been approaching parity with the Euro, would see any contributions by foreign sponsor worth comparatively more than previously.
Danny Vassiliades, a principal at Punter Southall said: "The current weakness in Sterling represents a strong financial case for overseas employers to shore up their UK pension schemes.
"European and US based parent companies with struggling UK pension funds could use the current financial markets to their advantage by making special lump sum contributions to their pension fund."
Vassiliades added any contributions made by foreign sponsors would be worth more than in the past.
As an example he said a contribution of €10m would make up a £9.5m funding deficit, compared to £7.4m a year ago. Similarly, a lump-sum contribution of $10m would equate to a deficit reduction of £7.4m, compared to £5m a year ago.
Vassiliades added: "Employers with strong covenants should consider such an approach and trustees should be putting this idea to their overseas parent to see if the employer is willing to use this opportunity. We may well find that this opportunity may close more quickly than expected."
Vassiliades did however concede economic pressures elsewhere in a sponsor's business may make the likelihood of decisive action to reduce deficits unlikely, and the largest UK pension funds were part of UK-based firms.
He also said UK-based multinationals should consider prioritising domestic pension deficits before turning their attention to foreign pension funding, due to the lower value of Sterling compared to major global currencies.
He noted: "With the currency against them, [UK multinationals] would be better off using any money in the UK."
Danny Vassiliades, a principal at Punter Southall said: "The current weakness in Sterling represents a strong financial case for overseas employers to shore up their UK pension schemes.
"European and US based parent companies with struggling UK pension funds could use the current financial markets to their advantage by making special lump sum contributions to their pension fund."
Vassiliades added any contributions made by foreign sponsors would be worth more than in the past.
As an example he said a contribution of €10m would make up a £9.5m funding deficit, compared to £7.4m a year ago. Similarly, a lump-sum contribution of $10m would equate to a deficit reduction of £7.4m, compared to £5m a year ago.
Vassiliades added: "Employers with strong covenants should consider such an approach and trustees should be putting this idea to their overseas parent to see if the employer is willing to use this opportunity. We may well find that this opportunity may close more quickly than expected."
Vassiliades did however concede economic pressures elsewhere in a sponsor's business may make the likelihood of decisive action to reduce deficits unlikely, and the largest UK pension funds were part of UK-based firms.
He also said UK-based multinationals should consider prioritising domestic pension deficits before turning their attention to foreign pension funding, due to the lower value of Sterling compared to major global currencies.
He noted: "With the currency against them, [UK multinationals] would be better off using any money in the UK."
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