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UK roundup: KPMG, Mercer, Chatham Partners

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  • UK roundup: KPMG, Mercer, Chatham Partners

UK - Asset-backed financing for pension schemes continues to grow with contrinutions totalling £5bn (€5.7bn) recorded over the last two years, a survey by KPMG has found.

According to the 2011 asset-backed financing survey published by KPMG, the £5bn of contributions, which account for 20% of total deficit contributions made, are set to grow even further over the next years.

KPMG expects asset-backed contributions to reach £10bn in the next five years, with potentially half of the FTSE 100 implementing it.

Mike Smedley, pensions partner at KPMG, said: "This growth is being driven by asset-backed financing becoming more mainstream. 

"When this type of financing first began to be used, it was only really large retailers using their property assets. 

"What we have seen more recently is that many more companies are looking at asset-backed financing to help reduce their pensions liabilities and they are using a much wider range of assets."

In addition to property, KPMG noted the use of intellectual property such as brands - with travel firm TUI transferring ownership of its Thompson and FirstChoice brands to its pension fund - or even whisky, employed by Diageo to address a £862m shortfall.

However, property remains the most popular type of asset for use in this type of financing due to its readily available income stream and perceived high level of security for the pension scheme.

In other news, a survey from Mercer and Chatham Partners says defined benefit scheme closure, escalating costs and regulatory changes are the top reasons driving UK and European companies to outsource the administration of their occupational schemes.

The survey showed that 45% of the private and public sector organisations surveyed were expecting to outsource in the next three years, while a further 10% expressed interest in the longer term.

Mercer and Chatham Partners also said interest in first time outsourcing is stronger in continental Europe than the UK, with 58% of respondents in Europe planning to outsource in the near future compared to 27% in the UK.
 
In the UK, the main driver for outsourcing administration is the closure and wind-up of defined benefit schemes followed by the management of increasing costs and coping with the impact of regulatory changes.

In the rest of Europe, however, the factors are more evenly balanced between cost management, regulatory changes and changes in plan design, together with the improvement of HR services to employees.
 
Access to better technology is also an important factor affecting decisions when it comes to move in-house administration to external providers in both the UK and the rest of Europe.

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