UK - Switching from equities to bonds has given the Boots pension scheme a £300m surplus, a new report shows.
Projected FRS17 figures reveal that the high street retail giant’s fund had liabilities of £2bn at the end of September. But its assets stood at £2.3bn giving it a surplus of £300m or £210m after deferred tax.
If the fund had retained its equity holding then the market value of the assets would be around £350m lower and have resulted in an FRS17 funding deficit of £50m or £35m after deferred tax, according to the report.
Boots head of corporate finance John Ralfe said: “We think that FRS17 is a good thing because it allows shareholders and creditors to see what is going on in our pension fund.
“In particular it allows people to see where we would have been had we not made the move [from equities to bonds].”
These figures come just weeks after Boots announced that it had moved its entire portfolio into bonds – enabling it to match the schemes assets with its liabilities as closely as possible.
The figures also reveal that movements in the statement of recognised gains and losses (STRGL) would have been zero for the six months between April and October 2001 under FRS17.
This compares to an STRGL reduction of £175m if the fund hadn’t moved into bonds.
The figures also showed that Boots service cost for the full year would be around 14% of pensionable salary (about £72m) under the new accounting standard, with investment income of £12m over the same period.
The FRS17 figures were released alongside the firm’s interim results, which showed that pretax profits had risen to £248.9m.
*Merrill Lynch has predicted a £75bn outflow from equities into bonds by UK pension schemes due to the twin effects of FRS17 and a maturing workforce.
The investment giant said this figure was based on a prediction of pension funds moving to a 60/40% equity/bond asset split.
Highlighting the trend it has pointed out funds with equity holdings larger or close to the market capitalisation of their sponsor companies.
The report said British Airways Pension Scheme has equity holdings worth over 413% of the value of its sponsor company, while Coats Viyella Pension Plan had a 400% difference, Marconi 375%, Corus 328% and Invensys 123%.
By Jonathan Stapleton and David Rowley
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