Growing employee interest
To some the fact that the main player in Ireland’s fertiliser manufacturing, Irish Fertilizers Industries (IFI) is jointly-owned by the Irish Government and UK chemical giant ICI and has been operating on an all-Ireland basis for years, may be surprising.
As with many things Irish, it is a matter of history. A merger in 1987 brought together the republic’s state-owned Nitrigin Eireann Teo and ICI’s Northern Ireland fertiliser subsidiary Richardsons, explains IFI’s personnel director Frank Brennan, based at the headquarters in Dublin. “IFI is a privately owned company, with these two shareholders, whom you might consider to be strange bedfellows.”
Now the company produces over 2m tonnes of chemicals each year at its three main plants in Cork, Arklow, just south of Dublin, and Belfast. “We trade about 1.4m tonnes annually and about a third is exported mainly to EU countries.”
Of the total work force of just over 600, about two thirds are in the republic, says Brennan. “We employ about a 100 graduates and have 300 or so production operatives, working on continuous shift.” On the face of it, not perhaps the most likely ground for a defined benefit(DB) scheme.
“We run a classical DB scheme,” declares Brennan, which he maintains fits the needs of the group precisely. “Because of our working patterns, we are a relatively high wage company, with little turnover in staffing and our average service profile would be 28 to 30 years.”
In fact IFI has three schemes, including a Northern Ireland scheme operating under UK legislation. “This is a non-contributory arrangement based on the ICI approach and has just 200 actives and 210 pensioners, with 100 deferreds, as a result of downsizing over the past 15 years or so.” The DB benefits structure follows the ICI pattern with pensions at age 65 for manual workers and 62 for the ‘white collar’ staff. With a fund size of £35m (e58m), Brennan says: “It is a robustly funded scheme, with our actuaries able to sleep soundly at night.”
The two other schemes, run under the republic’s pensions regime, the first comprises a closed staff scheme, a product of the times before pension funds really developed. It only has management and white collar staff, numbering a total of over 90 pensioners, with just 35 active members, the youngest of whom is his fifties. “So that will have no actives in a decade’s time,” says Brennan.
This was superseded in 1974 with the ‘Joint Pension Scheme’. “This covers 400 active members, 220 pensioners and just 30 deferreds, reflecting the low workforce turnover. This scheme has every thing you would expect to see in a DB arrangement set up in the 1970s, when most arrangement embracing all employees were set up in the republic on a properly funded basis.” These two schemes have assets totalling IR£110m (e140m).
IFI organises its trusteeship responsibilities through corporate trustees, having one trustee company in Northern Ireland and one in the Republic which manages both the staff and joint schemes. “As far as administration is concerned our approach is to contract-out everything we can” says Brennan. Aon are the administrators in the south and Mercer, in the north.
The schemes’ investments are run by external asset managers, Standard Life in the north and AIB Investment Managers in the south. “Currently our trustee board for the NI scheme is looking at the investment aspects. Mercer, as the scheme actuaries, have looked at the asset liability profile, which is giving us a steer as to whether we should change our policy. The probability is that we will change the investment manager’s mandate as a result, but no decision has been made.” One of the key issues is whether there is scope to improve fixed income performance by moving more to corporate bonds, Brennan notes, as well as the question of more specialist mandates, in place of the balanced approach now. About 70% is in equities currently. The review was prompted by the minimum funding considerations in the UK, Brennan says.
He along with IFI’s group finance director are the company’s representatives on each trustee board. “We are deeply involved with the study, which we expect to be completed in 12 months’ time.”
On the closed staff scheme, which currently is one third invested in gilts, he reckons the issue to be solved is whether the fund should have its liabilities totally matched with gilts at this point. “We have been increasing the fixed income component gradually.”
The investment side of the joint scheme in the republic is much livelier and in which there is keen membership interest, which he attributes to the 6.5% annual contribution rate for staff. “Both these schemes are in a strong financial position,” he says. “While IFI is not on a contribution holiday, the contribution rate is at its basic level of matching that of the employees. In the past, it has been more than double that rate.”
This improvement is directly due to the strength of the equities in recent years, which accounts for around 70% of the balanced portfolio run by AIBIM in Dublin. Though these managers have had mixed fortunes on the managed fund, IFI says it is satisfied with the manager’s performance. “In our relationship with AIBIM, we have basic customised benchmark, we adopted this after a lot of discussions with the scheme’s actuary Watson Wyatt as to what was appropriate for us. We are looking for a level of outperformance relative to the markets, but at the same time we are saying we do not want high excitement, with spectacular upswings followed by equally spectacular downswings. We want to fit solidly in the middle investing in stocks, with good price earnings and solid capital appreciation.” Fixed income makes up about 15% of the total, but as in the north, the potential role of corporate bonds in the portfolio is being examined in view of the shortage in supply of government issues. The balance is in cash and property.
The cash element within the portfolio is higher than it usually would be, says Brennan. “We are moving stock from the Irish market into Euroland equities and when you are engaged in such an exercise, you are going to be overweight cash.” This process was only started recently but it will take “a couple of years to complete as we are taking a pragmatic approach”.
IFI is highly committed to workplace involvement on the pensions front and runs a policy of open door and employee education. “In the republic, our trustee board of five has long been made up of two management people and two elected employee representatives, plus an independent chair person from the trustee company. “We have pre-dated the legislation in Ireland on this and we have now long experience of employee participation,” says Brennan. At plant level a pension committee has been formed as a focal point for employees to obtain information. “One of our local people says he never has a lunch hour in peace, as always someone has a query about the pensions scheme.” These plant committees meet together from time to time and are briefed by Brennan about market as well scheme issues. He says they played a key role when the Joint Pension Scheme moved to increase from 1998 the level of benefits, moving from an N/40ths to N/60ths basis, which means that the final pension for someone working with the group for 40 years can now obtain a maximum pension of two-thirds of final pay instead of one half previously. This major change was introduced after consultation and discussion right across the company in the south. “We believe in having a very open approach and a workforce that is educated on pensions matters.” The scheme’s booklet describing the scheme after these changes received an Irish Association of Pension Funds award as the best scheme brochure.
He points out that both he and the finance director are finding pensions matters are taking up an increasing portion of their time, partly due to legislation changes, but also to the increasing interest in the area.
Another measure of the interest in Brennan’s view is the high level of take up for the additional voluntary contribution(AVC) scheme, which allows employees to contribute to a standalone defined contribution arrangement arranged with an insurance company. “Over 50% of members have opted for the AVC.”
The same level of interest has not been shown in the NI scheme by its members, says Brennan. “For example, representation on the trustee boards only came in with the UK pensions legislation in the last few years.” In his view, the main difference is one of attitude, which is the result not of legislation, but of the fact that the NI scheme is non-contributory. “There is nothing like having to contribute 6.5% of your pay to give you an interest!”