UK Pensions Get Trigger Happy

An increasing number of the largest public companies in the UK are employing triggers to reduce risk when a certain funding level is reached on their pension funds, research has found.

Many companies listed on the FTSE 100 revealed they had switched out of equities to bonds over the course of last year as markets lifted assets—and funding—values, according to the annual survey on the sector by consultants and actuaries LCP. The survey said this movement would only intensify.

“Several companies, such as Bunzl, GlencoreXstrata, Meggitt, and Rexam, have disclosed that pre-agreed investment triggers have been put in place, under which assets will be switched from equities to bonds when the scheme’s funding levels improve,” the report said.

This type of mechanism potentially enables schemes to de-risk without any additional contributions being required from the sponsoring employer, LCP said, predicting a further shift out of equities as funding levels improved.

LCP estimated some £7.6 billion of the £14.8 billion allocated to defined benefit pensions was intended to shore up deficits. The number was down on 2012’s figures due to some large cash injections made by companies with significant holes to fill in that year.

Instead of making monetary contributions, some 38 companies said they had made other arrangements, including using contingent assets, to make good pension deficits in 2013.

These assets included aircraft, goods made by the company, and real estate.

Despite this, five companies paid more into resolving their pension deficits than they did to shareholders in 2013: International Airlines Group; Lloyds Banking Group; RBS; Royal Mail; and Sports Direct.

The LCP report on FTSE 100 company pensions can be found on the company’s website.

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