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AkzoNobel pays off shortfall at UK subsidiary pension funds [updated]

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Dutch chemicals giant AkzoNobel is to pay €639m to two of its UK pension schemes in a final settlement to fill funding deficits.

In its financial report for 2018, the company said it would contribute €481m to cover deficits at the ICI Pension Fund and AkzoNobel (CPS) Pension Scheme, as well as €158m of pre-funding into an escrow account for the CPS fund.

It said its contribution was in addition to a top-up payment of €139m paid in January, in accordance with the previously agreed recovery plan.

Both UK pension funds – AkzoNobel’s main defined benefit schemes in the UK – were affiliated with the chemical companies ICI and Courtaulds, which were taken over by AkzoNobel in 2008 and 1998, respectively.

Last year, the £10bn (€11.5bn) ICI scheme said that, based on a full actuarial valuation, the employer was still due to pay additional contributions of £125m for 2019, 2020 and 2021.

At the time, it said that with these additional contributions “the pension fund would have sufficient assets to continue to pay benefits for many years”.

The AkzoNobel (CPS) Pension Scheme said that the pension fund and the sponsor had earlier agreed that the latter would pay additional contributions of £42m (€48m) annually until March 2018.

‘A lead ball around our neck’

Speaking to Dutch financial newspaper FD, Thierry Vanlancker, AkzoNobel’s chief executive, said he was relieved about the agreement with both pension funds.

He said his company had been insufficiently aware of the weak financial position of the schemes when taking them on.

“The problem has been like a lead ball around the neck of the company, costing us hundreds of millions every year,” the CEO told FD.

He highlighted that the pension funds themselves would now be responsible for filling in any future shortfalls.

The ICI Pension Fund has been gradually securing members’ benefits with insurance buy-ins over the past few years, securing roughly £7bn worth of liabilities with insurers including Legal & General , Scottish Widows and Prudential.

The payments to the UK schemes followed AkzoNobel sale of its specialist chemicals subsidiary last year for €7.5bn.

Trade unions in the Netherlands at the time demanded a €400m share of the proceeds of the sale, but the company declined .

“In this case, we would have committed to a promise that could lead to enormously high costs for the company,” Vanlancker said.

He added that, based on IFRS accounting rules, such a payment would have entitled the defined contribution pension fund to demand further additional contributions in the future.

Further reading

Dutch firms pay higher contributions to UK subsidiaries, survey finds
Barnett Waddingham research finds Dutch parent companies paid pension contributions to UK subsidiaries of 1.6% of total revenue on average, versus 0.7% from UK-based groups

This article was updated on 20 February to clarify that the payments are the last AkzoNobel will make to the two UK funds.

Related images

  • AkzoNobel office

Readers' comments (1)

  • "He highlighted that the pension funds themselves would now be responsible for filling in any future shortfalls."

    What does that mean? It seems to imply that the sponsor is walking away from the schemes; but presumably TPR wouldn't allow a solvent sponsor to do that? I can only assume the schemes have fully insured their liabilities and so the insurers will effectively "be responsible for filling in any future shortfalls".

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