UK - Cable & Wireless has confirmed its UK defined benefit (DB) pension scheme will be split in half as part of the demerger of its worldwide arm.
The global communications company plans to separate into two businesses - CWI and Worldwide - by 31 March 2010 and the board has provided further information on its proposals to raise around £1.1bn of financing to fund the demerger.
But in its statement the board revealed the main UK pension scheme, which currently has an IAS19 accounting deficit of £305m (€344m), would be equally split between the two new businesses subject to agreement with the trustees. Approximately half of the pension assets and liabilities would be transferred to a "new, identical scheme" created for Worldwide, with the other half remaining with CWI.
The split follows the decision in July 2008 to buy-in the UK pensioner liabilities of the scheme with Prudential in a £1bn deal. The firm noted that the deal used 50% of the scheme's assets, leaving 31% in equities and the remaining 19% in bonds, property, swaps and cash. (See earlier IPE articles: Cable & Wireless agrees first £1bn 'buy-in' and C&W reports £32m accounting deficit)
However, C&W confirmed that discussions with the scheme trustees are "underway and we anticipate reaching agreement on the appropriate measures including any additional funding to ensure that the expected security of any scheme member's benefits is not adversely affected by splitting the fund between the two businesses".
It added that once it had reached an agreement with the trustees it plans to seek clearance for the splitting of the scheme from the Pensions Regulator (TPR).
At 30 September 2009, the main UK defined benefit pension scheme reported an increased deficit of £305m, up from £32m in March 2009. It attributed this to lower discount rates and real interest rates, which increased the accounting value of liabilities by £515m against a growth in the fund's assets of £242m.
In the meantime, the company has agreed an interim funding plan ahead of the next actuarial valuation in March 2010, which comprises payments of £10m in October 2009, £20m in October 2010 and £45m in April 2011.
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