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Pensions Watch - issue 24
Money for nothing
With equity markets having retreated to their 1996 levels, data released by the pensions practice at PwC suggests that 10 years of saving into an occupational defined contribution (DC) scheme, via a FTSE All Share tracker fund, would today have culminated in an estimated 3.5% per annum loss, whilst over 20 years the resulting 3% per annum gain would have been trumped by the net return from a high street savings account.
Pension funds don their bowler hats
Those large defined benefit (DB) pension schemes with abundant liquidity have started to capitalise on the contraction of bank lending by extending loans directly, collectively and jointly with banks to credit starved companies. A number of asset managers are planning to launch pension scheme funded bank loan funds on the back of this initiative.
Deficits over dividends
With the collective deficit of UK DB pension schemes, measured on the Pensions Protection Fund (PPF) basis, now in excess of £200bn and calls from cash strapped corporate sponsors to extend the recovery period by which to plug scheme deficits beyond 10 years, The Pensions Regulator (TPR) has warned corporate sponsors not to put the payment of shareholder dividends before DB pension scheme funding considerations.
Indeed, actuarial consulting firm Lane, Clark and Peacock estimates that around 85 of the UK ’s largest companies could have paid off their DB scheme deficits had they not been as generous with their dividends in 2007. Separately, actuaries Hymans Robertson confirm that in 2008 the average UK company devoted a mere 20 days worth of profit to paying off its pension scheme deficit. All of this could, of course, lead to 2009 being a bumper year for pension scheme buyouts.
Gilt complex
With the UK government set to issue an average of £135bn of gilts over each of the next five years, the National Association of Pension Funds (NAPF) has suggested to the UK ’s gilt issuing authority, the Debt Management Office (DMO), that pension schemes should be able access the market directly through private placements of gilts.
Every little helps
The 153,000 members of the Tesco DB and career average earnings pension schemes are expected to see their contributions rise by 1% and 0.25% respectively, to meet increasing scheme longevity costs. In addition, Tesco will contribute an additional 0.2% of members’ salaries and pledge £500m of contingent assets to each scheme.
Stand and deliver
The Chair of the Royal Mail Pension Trustees warned Business Secretary, Lord Mandelson, of the “devastating consequences” for the 450,000 members of the Royal Mail’s £22bn DB scheme if the Royal Mail is not part-privatised. With a scheme deficit now in excess of the £5.9bn quoted in December’s independent Hooper review of the Royal Mail, the trustees believe the Royal Mail is in no position to address the deficit without the sale of a minority stake in the business or government assistance.
…and finally.
Unlucky for some
13. According to pensions consultancy Pension Capital Strategies, that’s the number of FTSE 100 companies whose stock market capitalisation is now dwarfed by the size of their DB pension scheme liabilities.
Unless stated otherwise the opinions expressed are those of Aviva Investors Global Services Limited. Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: No. 1 Poultry, London EC2R 8EJ. Authorised and regulated in the UK by the Financial Services Authority and a member of the Investment Management Association.
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