Kesko becomes latest corporate to transfer pension
FINLAND - Kesko, Finland’s main trading sector services provider, has followed a trend set by several other employee sponsored pension schemes in Finland and announced it will transfer the management of its statutory pension provision to €22.9bn Ilmarinen Mutual Pension Insurance Company.
Kesko Pension Fund currently provides statutory pension insurance cover to approximately 8,700 employees.
In the announcement Kesko made on the last day of 2009, it announced the move would “have a positive effect” on its cash flow, in addition to which it will “release capital for business activities.”
Kesko is currently in the process of expanding its business in Russia and the Baltic States, and the transferral of pension assets to Ilmarinen is expected to give it more ability to manoeuvre in these regions.
The transfer, which is still pending the approval of the Financial Supervisory Authority and the Finnish Competition Authority, will take place in two phases starting from 1 June 2010.
The amount of statutory pension liabilities to be transferred from Kesko Pension Fund to Ilmarinen in the first stage totals €280m. It will consist of the pension coverage of some 3,600 of Kesko’s employees. The second phase will be implemented at the beginning of 2012 at the earliest. And the total amount of pension liabilities to be transferred at the second phase is expected to be about €60m.
In addition to the statutory pensions, Kesko Pension Fund has been providing supplementary pension provision for people who were employed by Kesko before 8 May 1998. The pension fund will continue to manage the supplementary pension provision.
The transfer of the statutory insurance portfolio will limit the pension fund’s asset allocation in the future, to consist solely of equities and Kesko’s own property holdings.
According to the conglomerate, the transfer also included the sales of some of the pension fund’s store properties partly to Ilmarinen and partly to a joint venture owned by Kesko, the pension fund and Ilmarinen, for €440m, thus giving the group a cash inflow of some €780m.
“The completion of the arrangements will have a positive non-recurring income statement impact for Kesko and the Kesko Pension Fund,” the statement said.
The move follows the dismantlement of several other company pension funds in Finland, which in recent years have transferred their assets to the two main mutual pension insurance companies, Ilmarinen and Varma.
The most recent move prior to Kesko was that of the VR State Railways, which announced the transfer of its statutory pensions cover to Varma in November. (See earlier IPE story: Finnish railways pension follows outsourcing track)
However, the topic remains sensitive as the current regulations have been accused of favouring large pension insurance companies on the cost of employer-sponsored pension funds. “It is understandable that a company that needs extra cash for international expansion does this,” said a local pension expert.
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