ITV considers DB changes as deficit hits £178m
UK - ITV, the commercial broadcast company, has reported a “lower than speculated” £178m (€200m) deficit in its defined benefit (DB) pension scheme but announced it is to begin a consultation on possible changes to the plan.
In its 2008 end of year results, ITV revealed the DB scheme, which is split into three sections A, B and C, had pension liabilities of £2.34bn at 31 December 2008 - on an IAS19 basis - and assets of £2.16bn resulting in a net deficit £178m, up from £112m the previous year.
Figures showed the last actuarial valuations for the B and C sections in January 2007 reported a surplus of £23m, or 5% of liabilities, but section A had a deficit of £190m, or 9% of the liabilities, in January 2008.
ITV confirmed section A deficit was reduced by an additional payment of £30m last year, and it had agreed a five-year deficit funding deal agreed with trustees to pay £30m a year until 2013 into this section of the plan, although it admitted because of the previously reported surplus no recovery plans are in place for the B and C sections.
Ian Griffiths, group finance director at ITV, told attendees at the results presentation that the pension deficit was “lower than speculated” as there had been some benefit from improved discount and inflates, and claimed the company was “relatively prudent compared to others” as two-thirds of the pension fund is in bonds.
That said, he admitted the firm had decided to adopt more cautious mortality assumptions, effectively adding two years to life expectancy - a move which Griffiths said had increased the pension deficit by £88m.
Although ITV recognised a deficit of £178m, the results statement highlighted if the pension scheme was valued on a solvency basis - used to calculate the cost of buying out benefits at the balance sheet date with an insurer - the amount required to settle the DB liabilities rather than continuing to fund them on an ongoing basis would leave a shortfall of £1.8bn, compared to a £1.1bn gap in 2007.
ITV also confirmed despite reducing equity holdings in favour of interest-bearing investments during the year, resulting in a portfolio mix of 35% equities and 65% bonds, the actual return on plan assets “was a decrease of £276m”.
Going forward, it revealed the benchmark portfolio for 2009 will be broadly 47% equities - of which 78% will be overseas investments - and 53% in bonds, but added it “will also begin a consultation with the trustees and staff over possible changes to the DB sections of the pension scheme”.
Griffiths said in his presentation ITV would “continue to explore ways to manage this risk and will consult with the trustees on any changes that we consider”, but refused to comment further on the nature of any possible changes.
“Whatever we do on the pensions, and it is something that’s very much work in progress, we will talk to our pension trustees first before talking about it publicly. I think that’s the appropriate way of doing it. We’re working through a whole series of options and when we’re ready we will talk to trustees and then come back and tell you guys how we want to move that forward,” he said.
The main ITV DB scheme, established following the merger of a number of older schemes in January 2006, provides retirement benefits to both former employees and around 25% of its current monthly paid employees, while new joiners are offered the option of joining a defined contribution (DC) arrangement, which had an operating charge of £4m in 2008 compared to £10m for the DB scheme.
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