Serco pays £17m to fund deficit, close defined benefit pension fund
UK – Outsourcing giant Serco has paid nearly £17m (€19.8m) to fund a deficit of a pension fund acquired alongside an IT company last year, allowing the defined benefit (DB) fund to be closed.
According to the company’s half-yearly report, Serco made special pension contributions of £19.2m before the end of June, £16.8m of which related to its intention to fund the deficit within the Vertex DB fund.
Serco acquired the public sector division of Vertex in a £56m cash deal last year.
In the report, the company noted that the remainder of the £19.2m would be used for a deficit-recovery payment in a second DB fund.
“The Vertex payment enables their separate defined benefit scheme to be closed and thereby reduces ongoing administration costs,” it added.
Serco managed pension assets of £1.4bn at the end of June, split between non-contract specific funds and those that were tied to specific and time-limited outsourcing contracts.
“Serco has limited commercial risk in relation to the contract-specific schemes, due either to the right of cost reimbursement or because the deficit will, in general, pass back to the customer or on to the next contractor at the end of the contract,” it noted.
The contract-specific schemes had assets of £213m, reporting a small deficit of £12.1m in June after a “franchise adjustment” of £62.3m.
However, the company’s own Serco Pension and Life Assurance Scheme (SPLAS) remained in surplus, albeit down to £34.2m instead of the nearly £70m surplus at the end of December last year.
The fund nonetheless reported a slight actuarial deficit.
“The estimated actuarial deficit of SPLAS, calculated using trustee assumptions, as at 30 June 2013, was approximately £26.5m (2012: £10.9m),” it said.
The calculations were based on discount rates between 4.6% and 4.8%, which the company admitted could drastically change if it were forced to change assumptions.
It estimated that a 0.5% reduction in its discount rate would increase scheme liabilities by as much as 14%.