UK roundup: LGPS returns, Milk Pension Fund, 3i pension buy-in
Local government pension schemes (LGPS) generated an average investment return of 21.4% in the 12 months to the end of March, according to Pensions & Investment Research Consultants (PIRC).
PIRC’s sample of 60 local authority pension funds – out of 89 in England and Wales – recorded a five-year annual average return of 10.7%. Over 20 years, the average annual gain was 7.4%.
Karen Thrumble, head of performance services at PIRC, said: “The strong performance has been driven by the excellent results from equities which returned almost 30% for the year. The outperformance of benchmark indices by alternative assets was the key driver in the unusual statistic that more than three quarters of funds managed to outperform their benchmarks in the latest year.”
Thrumble added that LGPS assets were “in good health”.
Employer withdraws from Milk Pension Fund
National Milk Records (NMR), a service provider for UK dairy farmers, is exiting the Milk Pension Fund, the industry-wide scheme for the milk and dairy industry.
As part of the “flexible apportionment arrangement”, NMR will pay just over £10m (€11.4m) to the fund to cover some of its liabilities.
The company will also pay £4.7m in cash and NMR shares to Genus, a genetics company and another member of the Milk Pension Fund, to take on other aspects of its pension liabilities. NMR also plans to sell a subsidiary company to Genus.
In a statement to the stock exchange this morning, NMR chairman Philip Kirkham said: “Our liabilities to the Milk Pension Fund have been a key issue for the company, restricting its ability to attract new investment. We believe that withdrawal from the fund will facilitate growth, enabling NMR to focus on its cash-generative core business and rebuild its historic strong balance sheet. Furthermore, it will give shareholders and potential investors in the company greater clarity as to the group’s underlying performance, while freeing up valuable resources and management time.”
NMR paid £2.7m into the scheme in the five years to 31 March 2016, the company said, and is expected to pay £10.2m in the next nine years. Shareholders will be asked to approve the withdrawal at a meeting later this month.
DB deficits hold steady in May
Across all private sector defined benefit (DB) schemes the shortfall edged slightly higher to £183bn, up from £182bn in April, according to JLT Employee Benefits.
A separate estimate from PwC using its Skyval DB index recorded a fall in the aggregate UK deficit to £510bn. However, adjusting for new life expectancy data, the deficit was an estimated £210bn.
Charles Cowling, director at JLT employee benefits, said addressing DB shortfalls would continue to be the “single biggest headache” for many companies.
The Pensions Regulator recently warned companies to ensure a fair balance between payments to DB schemes and to shareholders, while a proposed change to accounting rules could see companies forced to disclose more information about their pension liabilities on their balance sheets.
3i Group seals £200m buy-in
Private equity giant 3i Group has agreed a £200m buy-in for its DB scheme with Pension Insurance Corporation (PIC).
The transaction covered roughly 40% of the scheme’s liabilities for pensions in payment, according to a statement from PIC.
Carol Woodley, chair of trustees for the scheme, said: “The [pension scheme] has been de-risking for a number of years, primarily by moving our asset mix to favour index-linked gilts.
“We are very pleased to have been able to complete this logical next step in our long-term de-risking programme. PIC demonstrated significant expertise while helping us to manage a complex project and ultimately deliver the transaction we required.”
Michelle Wright, partner at LCP and lead adviser on the deal, said it was “an excellent example of the attractive pricing that persists in the market for well-prepared pension plans”.
Scottish National Party supports state pension ‘triple lock’
Scotland’s main political party has pledged support for the ‘triple lock’ on the UK’s state pension in its general election manifesto.
The Scottish National Party (SNP) said it would maintain the policy, introduced in 2010, which guarantees that payments will increase by the level of inflation, average earnings, or 2.5%, whichever is highest.
The party also voiced its opposition to increasing the age at which people can claim the state pension beyond 66.
“We will support the establishment of an Independent Savings and Pension Commission, to ensure pensions and savings policies are fit for purpose,” the manifesto said. “The remit of the commission should include consideration of the specific demographic needs of different parts of the UK in relation to [the] state pension age.”
The SNP also backed plans to extend auto-enrolment to include lower-paid workers and self-employed people are covered. The Conservative Party, predicted to win an overall majority of the seats in the 8 June election, has made a similar pledge in its manifesto.