Support with funding to a multinational company

Our work involved providing support to a multinational company which acquired a UK operation with a large (>£3bn) DB scheme several years ago through a historic transaction.

Barnett Waddingham advice

We provided support to the company in its negotiations with the trustees during the triennial valuation process.
This involved keeping the management team, based in Europe, up to date with developments in UK pensions, analysing and challenging assumptions and figures prepared by the scheme actuary, exploring alternative scenarios with the company and preparing a counter-proposal and support during meetings with a trustee sub-committee.

As part of the analysis we were able to demonstrate that, under the trustees’ proposed funding plan, the scheme could potentially be fully funded on a buy-out basis ahead of the end of the proposed recovery period.  As part of the counter-proposal to the trustees we helped develop a framework which could be used to manage the funding level of the scheme towards a buy-out position over a longer time horizon.  One of the conclusions reached was that it would be more efficient to target a buy-out once the majority of deferred members have retired, to avoid having to purchase deferred annuities which tend to be much more expensive compared to immediate annuities.

We also worked closely with our investment team, who are also advising the company, in developing the counter-proposal.  They used cashflows provided by the scheme actuary to prepare an analysis of the progression of the funding level over time which the company was able to use as part of the counter-proposal.  The investment team also carried out an analysis for the company to give them a better understanding of the interest rate, inflation and credit risks inherent in the trustees’ investment strategy which highlighted potential areas where further de-risking could be considered.

The negotiations were challenging as our analysis provided good evidence for the company to pay reduced contributions.  The strategy adopted by the scheme had served it well over the three years to the valuation date and the position had improved.  The trustees were reluctant to accept a reduction to the current level of contributions and the matter was further complicated because the scheme actuary has a role in setting the contribution rate.

The end result was that although the company was unable to secure an extension to the recovery period it was able to negotiate down the deficit and secure a significant reduction in total contributions.  The company was also able to secure a cap on future contribution requirements should the deficit increase at the next valuation (which is effectively an undertaking to extend the recovery period in the event of adverse experience).