Insurer moves from final salary to average salary scheme in series of measures slice pension deficit
The announce-ment from Royal & Sun Alliance that it is reshaping its
group pension scheme to slice its pension deficit by £126m, revealed the latest
strategy used by UK plc in the ongoing struggle to manage pension schemes.
The FTSE100 insurer said it would retain its defined benefit scheme and
tackle the deficit issue by changing the method used to calculate its obligation
to members, from a final salary method to one based on average career earnings
while working for the company.
The move will reduce Royal & Sun Alliance’s £370m deficit by £126m.
The group will also overhaul its current UK deficit funding plan with an
accelerated programme that contributes £60m net of tax for each of the next
three years into the UK schemes, with the first payment in 2005.
The company said the changes would ‘tackle the deficit quicker’ and ‘give
greater security to scheme members’. In addition, action has been taken to
reduce the impact of future interest rate and inflation movements on the pension
The restructuring, backed by the company’s union Amicus and fund trustees,
was passed with 83% of the fund members’ votes. The changes will take effect
from 1 January 2006.
‘The group had a variety of options on how to deal with the deficit. It could
have stopped the current scheme from taking on new members or increased member
contributions,’ a Royal & Sun Alliance spokesman said.
Since the introduction of FRS17 and IAS19 – standards specifying stricter
guidelines for pension liability disclosures – companies have been grappling
with how to approach the fresh pension liabilities appearing on their books.
Reports suggest that BT, with its £5.1bn deficit (the biggest on the FTSE100)
has moved money into hedge funds in an attempt to reduce its pension liability.
BAE Systems, meanwhile, which has the second biggest FTSE100 deficit at £4.2bn,
is believed to be using monies from European disposals to plug its pension gap.
Royal & Sun Alliance’s decision to move from a final salary to a career
earnings plan marks yet another way of addressing the pension deficit challenge.
‘This option retains a defined-benefit scheme, reduces the deficit and
provides certainty for members,’ a Royal and Sun Alliance spokesman said.
AstraZeneca’s FD considers future at company, while Table Mountain Minerals
discusses reverse takeover
Rolls Royce, which reported a 14% increase in sales to £3.1bn, said it
was continuing the practice of making payments to shareholders in the form of
‘B’ shares rather than dividends. The shares can then be redeemed for the same
amount in cash that would have been received with a cash dividend, or converted
into the same number of ordinary shares that shareholders would have received
under the scrip dividend alternative. The issue of ‘B’ shares has significant
tax benefits, as it accelerates the recovery of advanced corporation tax.
Respected AstraZeneca finance director Jon Symonds may leave
the FTSE100 pharmaceutical company after David Brennan beat him in the race to
replace CEO Sir Tom McKillop. Symonds said he would ‘work it through’ with
Brennan before making a decision about his future. If Symonds does leave
AstraZeneca, he may also lose his position as chair of the Hundred Group, an
association of FTSE100 financial directors.
Cobham, the aerospace and defence company, has entered into a new £300m
revolving credit facility to replace an existing £150m five-year facility and
$200m (£112.8m) bridge facility put in place to finance its acquisition of
Remec. Cobham said the refinancing was completed to take advantage of favourable
market conditions that would reduce annual costs.
Reflexion Cosmetics has delayed the release of its accounts and
had its shares suspended after incurring extra costs while searching for
acquisitions. The company said it investigated a number of potential
acquisitions but did not make any. It still believes there are good acquisition
Shares in oil and gas company Table Mountain Minerals have
been suspended from AIM after the resignation of chairman Neil McClure and two
other directors, and news that the company was in discussions with a third party
that could lead to a reverse takeover of the business under AIM rules.