Non-Cash Assets To Plug FTSE Pensions
Monday, March 22, 2010

Significant numbers of the UK's 100 largest listed companies are looking to directly or indirectly fund their pension scheme deficits with non-cash assets, such as real estate, intellectual property or copyright.

According to PricewaterhouseCoopers LLP (PwC), who are advising numerous companies and trustees in this are the combined pension deficit of those companies actively looking at non-cash funding could reduce by GBP10bn (USD15bn), which represents around 10% of the GBP100bn combined FTSE 100 pensions funding deficit.   

Under these non-cash funding agreements, assets (such as real estate or intellectual property) are either paid directly into the pension scheme or used as security payable in the event of default or insolvency.  The enhanced security this provides to trustees enables them to reduce or defer demands for cash contributions from the sponsor. 

Brian Peters, partner and head of non-cash pension funding, PwC, commented:

“By using non-cash assets like real estate, intellectual property or copyright to fund its pension scheme, a company can meet trustees’ requests for better scheme security without diverting additional cash from the business.  This is particularly welcome at a time when deficits are volatile and borrowing is costly.  We expect about 10%, or GBP10bn, of the current FTSE 100 pension deficits to have been funded in this way before the end of the year. 

“Property belonging to the sponsoring company has been used as contingent pension assets before, usually as a promise to the pension scheme should the company go to the wall.  But the increase in use to fund deficits has been driven by the recognition that this is a cheaper source of finance than cash, especially at a time when selling property is likely to be loss-making. 

“By clearly articulating the additional security that non-cash funding can provide to a pension scheme while allowing the sponsoring business to use its cash to maintain its strength, companies are helping trustees accept the benefits of these types of arrangement.  They also help to protect the Pension Protection Fund in the event of the sponsor going insolvent.”