Can schemes find respite in the cash stockpiles of their sponsors? Hannah Brenton investigates.
Poor investment returns, abysmal gilt yields and ballooning deficits leave many trustees heading toward their scheme valuation date quaking in their boots.
The regulator’s revised valuation guidance last week may have eased the pressure slightly for those schemes in the worst positions, but it refused to budge significantly on funding requirements across the board.
But could trustees instead find solace in one of the bright spots in the economy: the cash stockpiled on corporate balance sheets?
Last month, the Ernst & Young Item Club said UK companies were “sapping the strength of the economy” by refusing to invest substantial cash reserves. For trustees with pension deficits to plug, could this be an opportunity to get ‘cash-rich’ sponsors to put more money into their scheme?
Aon Hewitt principal Russell Agius says companies are in a better position than they were at valuation time three years ago, but argues it is unlikely they will funnel spare cash into their pension scheme.
Agius says: “We have a position where companies have tightened their belts, they have reined in spending, they have falling costs, so all those things add to them being financially better placed.
“I think it is a brave finance director that feels they will get a better return by putting money in the pension scheme rather than investing it in the business.”
But Agius says trustees can get companies to “share the gain” by giving a percentage of company profits to the scheme.
“We have seen situations where companies have said: ‘We really need this money, we think we are going to get a good return’ and trustees have said: ‘Fantastic. We want to help you. We want to share in your success. So we will not ask you for quite as much, but when you do achieve that return we would like to share in it’,” Agius says.
“Trustees should always be asking for cash, and if they cannot get it they should be pushing for some of the upside when it comes through.”
In March, BT agreed to pump a whopping £2bn into its pension scheme to halve the deficit, partly funded through £1.5bn cash resources. In contrast, Trinity Mirror, which publishes the Daily Mirror alongside a number of local papers, faces TPR scrutiny for scaling back its deficit payments by £70m in part of wider refinancing agreement to help it repay private loan notes.
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