Engineering company transfers PFI assets to pension scheme to plug deficit
UK - Engineering company Costain has agreed the transfer of £20m (€24m) worth of Private Finance Initiative (PFI) holdings to its pension fund, as well as launching a liability management exercise in an effort to reduce the legacy scheme's deficit.
At the end of June last year, the Costain Pension Fund (CPS) reported a deficit of £35.8m, with the PFI transfer expected to result in a profit of £10.2m this year for the scheme.
Additionally, the engineering group will approach scheme members regarding an Enhanced Transfer Value (ETV) and Pension Increase Exchange (PIE) exercise, arguing the process would offer members "greater choice and flexibility" regarding their benefits, as well as reducing both scheme liabilities and overall risk.
Costain's financial director Tony Bickerstaff told IPE that this year's transfer of PFI assets marked the second such agreement, with one having been completed in 2010.
"From a trustee point of view, these are assets that are long-term government-backed leases," he said.
"In terms of pension funds, generally PFIs are good assets to hold, with the cash flow matching the long-term liabilities of the scheme."
The two PFI assets transferred cover a Schools for The Future development in London, a Labour PFI scheme to regenerate UK school buildings scrapped by the current government when it came into power in 2010, as well as a second project in Bradford.
Bickerstaff said the initial transfer of assets occurred under the recovery plan agreed after the scheme's actuarial valuation in 2010.
"The transfer of these assets are an enhancement on that plan," he said. "They are in addition to what we agreed."
He added that the company would re-examine the scheme's funding next year, upon completion of the next triennial valuation - with the current recovery plan lasting 10 years, the longest period granted by the Pensions Regulator.
The use of asset-backed contributions has recently come under scrutiny from the Treasury, with the UK government yesterday revising legislation to prevent "unintended, excess tax relief" as a result of their use.
Costain was hopeful that, in addition to the increased contributions, its ETV and PIE exercise would reduce liabilities by as much as £50m, with the outcome depending on how many members take up the offer before its conclusion in May next year.
It added that, combined, the three measures would lead to an estimated £16m reduction in the CPS deficit.
Both ETVs and PIEs have recently come under scrutiny from the Department for Work and Pensions, with commentators predicting that it would seek to legislate the market if the industry did not adhere to an imminent code of practice.
Pensions minister Steve Webb last year attacked the language used in literature surrounding PIEs, which allow a member to receive higher benefits in the short term in favour of signing away inflation-proofing, saying he would like a note included in all correspondence that he personally did not recommend the transfer.