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A way to tackle UK fund benefits

UK companies could use corporate debt or bank loans to tackle pension scheme funding problems, according to PricewaterhouseCoopers partner Terry Simmons.
In a presentation to a Pensions Management Institute conference, ‘Novel approaches to dealing with deficits’, he said most pension funds in the UK had a deficit.
Five years ago, he said, it would have made sense for a firm to keep its distance from its pension scheme’s funding problems. But new legislation meant sponsors could not walk away, so “shortfalls will have to be made good at some point”.
Among solutions, Simmons noted an approach suggested by Nobel Prize laureate Fischer Black that by “moving liabilities from one side of the company to another” there would be no change in the financial position of the firm and the pension scheme but there would be tax breaks and some cost saving.
Pension funds that could benefit from this would be in deficit, have significant equity assets, pay taxes (offering eligibility for tax breaks) and be able to borrow at low cost.
Transferring assets to bridge the funding gap would make sense now. Simmons explained his model using the example of a company that issues corporate bonds or seeks a bank loan to aid its pension fund.
Assuming the debt was worth £16m (e23m), the company would only need to raise £11m as it would get back £5m in tax relief.


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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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