Abrdn and the trustee of its main defined benefit (DB) pension plan have agreed to unlock part of the plan’s “significant” surplus to fund the cost of providing defined contribution (DC) benefits to current employees.
According to the group’s annual results, the closed DB scheme has a surplus of £800m.
The agreement, which is one of the largest of its kind, intends to enable Abrdn’s DC contributions to be funded from the DB surplus, while largely maintaining the surplus and retaining optionality.
The changes are expected to result in an annual boost to capital generation of circa £35m starting from July 2025.
DB members will meanwhile benefit from enhanced pension entitlements and guardrails to ensure continuing financial strength of the plan.
Abrdn acknowledged the importance of dividends to shareholders, and stated it intends to pay a total annual dividend of 14.6p per share until it is covered at least 1.5x by adjusted capital generation.
The agreement includes a modest increase to the target level of investment return, opening up the possibility for a broader range of investments, including private as well as public market assets.
Abrdn was advised by Slaughter and May, Pinsent Mason, WTW and PwC, with the trustee principally advised by Shepherd and Wedderburn, Hymans Robertson and Isio.
Jason Windsor, group chief executive officer at Abrdn, said: “I’m delighted that we have unlocked the significant value of surplus assets in our DB pension plan.”
In particular, he praised the “strong investment performance” of Abrdn investments which generated a surplus that the firm can expect to fund the company’s DC contributions for the foreseeable future, whilst enabling continued protection and pension enhancements for DB members.
Christopher Wheeler, professional trustee at BESTrustees and trustee chair, added that under the arrangements being announced, DB members would benefit from “enhancements to their pension entitlements whilst continuing to enjoy the security of an exceptionally well-funded scheme”.
Surplus extraction
The news follows the UK government’s announcement about pension reforms to allow surplus funding to be invested in the wider economy.
So far Abrdn is the second scheme to publicly announce its intention to extract its DB surplus; Schroders committed to running on at the end of January, also committing to using part of its surplus to support DC members’ funding.
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