03 September 2010
Research completed by PricewaterhouseCoopers (PwC) has shown
that companies are beginning to favour using their assets rather
then paying in cash contributions.
The results show that around a fifth of the FTSE 100 companies
have used assets in deals over the past twelve months to help
reduce pension fund deficits. These deals are estimated to have a
value of £8bn compared to that of the estimated £12bn
in cash contributions.
PwC are predicting that asset deals could now increase to
£10bn over the next year.
Assets that can be used range from bonds to brand royalties,
real estate to receivables, stocks to subsidiaries. They can
be paid directly into the pension scheme or used as a security
payment that can be used in the event of a default or
insolvency.
Raj Moody, Chief Actuary and Partner at PwC said:
"We have reached a tipping point whereby asset deals are
becoming a primary method of plugging pension scheme deficits. The
shift reflects the competing range of challenges facing companies
tackling deficits: corporate liquidity is still under strain, while
pension scheme trustees are demanding ever more prudent funding
targets. Meanwhile companies are having to do more to prove the
strength of their business to trustees, particularly as a result of
recent guidance from the pensions regulator."
"Non-cash funding arrangements can address a number of these
points all at once. They are a tangible demonstration of sources of
value the company can deploy to give security to the pension
scheme. They help bridge the gap between current funding levels and
longer-term funding targets, often in an accelerated way compared
to more gradual or back-end loaded cash contribution schedules. And
they obviously free up cash for other purposes such as continued
investment in the sponsoring business. As a result there is
growing recognition by companies and trustees alike of the benefits
of non-cash funding, along with increased prevalence of these
structures."
To read the full PwC press release please click here
