BusinessCorporate FinanceSave your pensions cash, FDs told

Save your pensions cash, FDs told

KPMG expert says investing in growth is a better bet

Finance directors with large pension deficits weighing down their balance
sheets could be better off investing in growth than rushing to pay down large
liabilities.

The current combined pension deficit of the FTSE 100 is £60bn, according to
analysis by Deloitte. The scale of this deficit has prompted a number of
companies to make large cash payments into their defined benefit schemes to fill
funding gaps.

Royal & Sun Alliance, BAE Systems, WH Smith and Wolverhampton &
Dudley are just some of the high-profile groups that have allocated cash to
deficit gaps.

Simon Collins, the chief executive of KPMG corporate finance, however, said
that in some cases business would be better off investing in growth, which would
help fund future deficits.

‘There is no more requirement for a profitable ongoing trading company to pay
off its pension deficit over an unduly accelerated time than there would be,
say, to pay all their bank debts,’ Collins said.

This more ‘balanced’ approach to pensions funding and assessing deficits
alongside other priorities was given further momentum after the pensions
regulator announced it would allow a more flexible timescale for paying off
deficits.

Timescales will now be decided on a case by case basis and the regulator will
use ‘filters’ and ‘triggers’ to manage its workload. This will ease the pressure
on companies with strong cash flows to fund deficits over short time periods.

Collins said that companies with flexibility should think carefully about
lumping money into pensions to fund deficits immediately, because it was
impossible to take money out of a fund that outperformed expectations.

COMPANY REPORTS

FTSE 100
Guarantees by the government over its protection of BT’s pension fund
liabilities, if the telecoms giant collapsed, have been overestimated, according
to ICAEW chief executive Eric Anstee. BT disagrees with Anstee’s view.

FTSE 250
Retailer Matalan is considering taking legal action against IT consultants who
advised the company on a halted software implementation. The company wrote off
£20m over a software implementation that was intended to revamp the company’s
warehousing, distribution and point of sale systems, and is considering taking
legal action against consultants Kurt Salmon Associates over issues with the
technology.

During the implementation, the providers of Matalan’s legacy systems updated
the software products and the retailer decided to stick with its original
system.

Platinum miner Lonmin’s effective tax rate, excluding special items, for the
sixmonths to the end of March fell to 33% compared with 41% in the previous
period. This reflected a lower level of dividends remitted in relation to
profits. The miner reported a 68% increase in revenues to $708m (£379.7m).

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