De-risking without significant increases deficit recovery contributions

As part of their most recent actuarial valuation, Tate & Lyle were seeking to continue to de-risk their £1 billion legacy DB pension scheme, but without a significant increase in deficit recovery contributions.

As the company’s advisers, we helped them agree a funding plan that achieved the company’s objective of keeping cash contributions at their target level, while also delivering sufficient ancillary security for the trustees to remain comfortable with the pace of contributions, the level of investment risk being run, and the 2026 target for full funding on a self-sufficiency basis.

Prior to the scheme’s 2013 actuarial valuation, the company and the trustees had put in place a framework for future investment derisking, which aims to reach a fully matched position within 15 years. In conjunction with this planned de-risking, and in the lead up to the valuation, the company and trustees also purchased a buy-in policy for a significant proportion of the scheme’s pensioner members.

"The company and trustees have agreed a number of trigger events which may result in the release of some or all of the funds in the secured funding account into the scheme at various points over the lifetime of the structure."

We helped the company to align the scheme’s actuarial valuation method and assumptions to the existing de-risking framework, including a simplified technical provisions basis and an allowance for best-estimate investment out-performance within the recovery plan. This meant that the headline level of deficit reduction contributions being paid into the scheme could be maintained at the level set at the previous actuarial valuation (£12 million per year). At the same time, the company had also achieved significant progress towards de-risking the scheme over this period. The new aligned funding and investment target is to reach full funding on a self-sufficiency basis by 2026.

In conjunction with the committed deficit reduction contributions of £12 million per year, the company also set up a secured funding account, funded through annual payments of £6 million per year (for six years). The company and trustees have agreed a number of trigger events which may result in the release of some or all of the funds in the secured funding account into the scheme at various points over the lifetime of the structure. These trigger events include under-performance of the scheme’s assets and a deterioration in the employer covenant, thereby ensuring that the agreement with the trustees forms a complete financial management plan for the remaining lifetime of the scheme. This innovative and integrated approach to risk management also ensures full compliance with the key principles set out in The Pensions Regulator’s new code of practice on ‘funding defined benefits’.