UK - The Waterways Pension Scheme and its new sponsor the Canal & River Trust have formed a pension funding partnership (PFP) to transfer property assets to the scheme, according to advisers Deloitte.
It is the first time this funding structure has been used for a charity, the consultancy said.
Philip Ridal, finance director at the Canal & River Trust, said: “Deloitte helped us to develop a PFP structure which made a significant difference to how we are able to manage and fund our scheme while respecting our commitments with all stakeholders.”
The PFP involves a real estate asset-backed contribution made by the trust - a new charity which has taken over from public body British Waterways - as part of a package of measures to strengthen the employer covenant.
Mark Jones, consultant director at Deloitte, said this was the first time a PFP had been used by a charity. “There can be tax advantages but that’s not the main driver,” he said.
The formation of the Canal & Rivers Trust has involved a major transfer of public assets and employer pension responsibilities from the Department for Food, Environment and Rural Affairs (Defra) to an independent organisation.
As part of the trust’s funding, the government announced at the beginning of this year it would give it a capped ‘last resort’ guarantee in relation to the historic public sector pension liability.
The last British Waterways annual report stated that the pension deficit was £82m (€105m) at the end of the 2011-12 financial year.
The new PFP will own commercial real estate assets, providing a secure income to the pension scheme trustee, Deloitte said. It meant the Canal & River Trust could provide extra funding and security to the scheme while keeping cash for charitable uses, it added.
PFPs have certain tax advantages for companies, notably a tax rebate associated with the transfer of assets. But due to the charitable status of the trust, Deloitte pointed out there was no tax benefit from its use of the PFP structure.
However, the PFP would deliver “an attractive ongoing rate of return to the pension scheme while equally managing any risk of overfunding”.
Jones said Deloitte expected to see more companies and pension schemes using PFPs as instruments to solve funding issues.
“We are actively in discussion with around another fifteen to twenty parties at the moment,” he said.
So far, Deloitte has arranged PFPs for 20 companies, with the largest being a £600m deal for Sainsbury’s in May 2010.