Scottish soft drinks manufacturer A G Barr has set up a long-term funding arrangement backed by real estate worth £21.7m (€26m) to plug its defined benefit (DB) pension fund deficit.
The properties, which include the company’s head office, production facility and warehousing in Cumbernauld, have been transferred to a partnership that has agreed the arrangement with the trustee of the £96.3m A G Barr 2008 Pension and Life Assurance Scheme.
They are being leased back to the company under a 21-year agreement, for £1.1m per year, increasing annually in line with inflation.
The company will be able to buy them back for a fixed price when the lease ends, or earlier, if the scheme becomes sufficiently funded to secure members’ benefits with an insurance company.
The company will also retain operational control of the properties, which will remain on its balance sheet.
The transfer was announced as A G Barr’s half-year results were published last week.
The company said the transfer had been made to improve the funding and the level of security provided to the scheme.
It added that the new arrangement fully removed the deficit, and should also remove the need for any future deficit-reduction contributions, estimated at £1.5m a year.
The transfer will also enable the pension fund to implement a more prudent investment strategy – including moving from equities to bonds – while providing the company with accelerated tax relief on the pension contribution.
The next triennial review in April 2014 is expected to confirm a pension scheme deficit of between £10m and £15m.
The pension scheme returned 13.9% over the 12 months to 28 July.
At that date, 57% of its assets were in equities, 37.7% in bonds and 5.3% in cash.
An A G Barr spokesman said: “Throughout the year, the DB pension scheme trustees have reviewed opportunities to reduce risk, acknowledging the long-term nature of pension arrangements.
“This arrangement will improve both the funding and the level of security provided to the scheme, bringing an immediate improvement of £20.4m to the pension scheme’s funding position.”