Trinity deficit rises €80m as bond yields hit home
UK - Falling corporate bond rates and rising inflation caused the pension deficit of Trinity Mirror's 10 defined benefit (DB) pension schemes to increase by £68.3m (€80m) in the first half of this year.
Trinity Mirror's DB plans closed to new members in January 2003 but they have combined assets of around £1.2bn and pension liabilities of £1.49bn, resulting in a deficit of around £275.2m.
This is up from a deficit of £206.9m at the end of December 2008 and almost double the £145.2m deficit recorded at the end of June last year, despite the value of the assets increasing by £6.2m over the period.
The company attributed the rise in the pension deficit to a £106.5m increase in liabilities, "driven by a fall in corporate bond rates and an increase in inflation which have contributed to the real discount rate falling by 0.75% from 3.75% to 3.00%".
However, Towers Perrin noted Trinity Mirror is not alone in seeing the fall in bond yields has caused pensions deficits to swell, as the consultancy firm claimed deficits have nearly tripled in size since the start of 2009 from £25bn to £70bn.
John-Paul Augeri, principal at Towers Perrin, said: "Although pension deficits already looked pretty alarming, the blow to company financials has so far been cushioned by corporate bond yields that were driven up during the credit crisis. Now that yields are starting to move back towards historic levels the outlook for pension balance sheets could be bleak. This is likely to be of serious concern to senior management, particularly if the trend continues into the year end accounting season."
The firm also suggested the increasing liabilities appearing in balance sheets could trigger a renewed interest in pension fund buyouts, which have slowed this year as prices have risen.
Augeri said: "If the hit to their accounts is reduced, senior management may be more willing to take decisive action - even if the absolute cost of buyout remains the same. We may see the market, which has been relatively quiet so far this year, become much busier."
Further details Trinity Mirror's results showed five of the DB pension schemes - the Mirror Group Pension Scheme; the MGN Past Service Pension Scheme; the MGN Pension Scheme; the Trinity Retirement Benefit Scheme and the Midland Independent Newspapers Pension Scheme (MIN) - together represent more than 96% of the total value of the scheme's assets.
Figures showed the Mirror scheme and MGN past service scheme have a combined deficit of £176.7m, while the MGN scheme and MIN pension funds have shortfalls of £83.1m and £15.4m respectively while the Trinity scheme has a small surplus although its triennial valuation is scheduled for 30 June 2009.
Going forward, the firm revealed it expects contributions to the DB schemes to reach £35m in 2009 - including current service costs of around £16.5m - with an increase to between £40-50m a year from 2010.
Meanwhile, the National Society for the Prevention of Cruelty to Children (NSPCC) has confirmed it is closing its defined benefit (DB) scheme to existing members in an effort to keep the £20m pension shortfall at a manageable level.
Ian Chivers, director of finance, at the charity, said: "Regrettably we have had to close the final salary pension scheme because of the extent of the scheme liabilities and the level of financial risk this presented the Society. By closing the scheme to further accruals we have achieved a still significant but much more manageable scheme deficit and as a result the pensions our members have earned to date will be much more secure."
Following the closure around 900 staff will be transferred into the organisation's stakeholder pension scheme, with the NSPCC confirming it is putting in place transition arrangements for the transfer.
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