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.
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AstraZeneca, he may also lose his position as chair of the Hundred Group, an
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