Smiths Group sets up escrow account for pension deficit
UK - Smiths Group, the global technology company, has reached an agreement with the trustees of its two UK pension schemes to recover the combined deficit of £655m (€788m) over the next decade.
The agreement follows the triennial valuations of the Smiths Industries Pension Scheme (SIPS) in March 2009 and the TI Group Pension Scheme (TIGPS) in April last year that revealed deficits of £545m and £110m, respectively.
Smiths noted there had been a substantial increase in the asset values and funding position since the valuations occurred, which was "reflected by the contingent nature of a significant element of the agreed funding plans".
Under the terms of the recovery plans, Smiths will be required to make cash contributions to SIPS of £36m a year for 10 years, subject to future triennial valuations.
This is an increase from the previous deficit contribution level of £33m a year.
In addition, it has agreed to make an initial investment of £25m into index-linked gilts that will be held in an escrow account with further monthly investments of £2m for nine years starting in July 2011.
Smiths confirmed the account would remain a company asset until 2020 subject to the funding position of SIPS at that time, or it could revert back to the technology company at an earlier date if future valuations report a funding surplus.
The company said: "This provides a contingent funding commitment without locking the investment into the scheme should its funding position improve."
It has also agreed a conditional cash contribution to TIGPS of up to £50m, payable in May 2012, with further biannual contributions of £8m.
However, these payments can be reduced or suspended depending on the funding position of the scheme in the six months that end in March 2012.
Smiths Group had previously taken measures to reduce its liabilities for the TIGPS scheme by completing buy-ins with Legal & General and Paternoster in April and September 2008, that were each valued at £250m. (See earlier IPE articles: TI Group agrees partial buyout with L&G and TI Group agrees second buy-in)
In a statement, Smiths added: "The funding plans allow for contributions to be reduced in the event of improvements in the overall funding positions of the schemes following future triennial valuations.
"The use of the escrow account for SIPS ensures no material change to net cash outflows to the UK pension schemes prior to the date of the next triennial review."