Pension gaps threaten FTSE 100 companies; UK companies use property to fund deficits; Canadian fund invests in Australian property; Brazil weighs up pension bills
Pension gaps threaten FTSE 100 companies
A growing number of FTSE 100 companies have pension schemes that pose a material risk to their businesses, according to a quarterly report published by Pension Capital Strategies.
The report, developed in association with JP Morgan, found that total disclosed pension liabilities of FTSE 100 firms had increased from £382 billion ($646.2 billion) to £410 billion ($693.59 billion) in the past year. Fourteen of the top 100 companies have liabilities in excess of £10 billion ($16.9 billion). The largest is Royal Dutch Shell, with £39 billion ($65.97 billion) in liabilities.
Nine of the United Kingdom's biggest listed companies have total disclosed pension liabilities greater than their equity market value, including British Airways and BT, both of which have total disclosed pension liabilities over treble their equity market value.
Only five of the FTSE 100-linked pension funds reported a surplus in their recent annual reports. Those are Old Mutual, Prudential, Investec, Land Securities and the London Stock Exchange.
The total deficit of FTSE 100 companies stood at £66 billion ($111.65 billion) as at March 2010, unchanged from a year ago despite a hike in deficit funding. Companies have injected £11 billion ($18.6 billion) into deficit funding in the past year, up from £4.4 billion ($7.62 billion) a year earlier.
UK companies use property to fund deficits
Facing huge shortfalls in their pension funds, British companies are widening their funding options.
Retailers J Sainsbury and Marks & Spencer announced they would tackle gaps in their final salary schemes with property partnership deals.
Sainsbury will transfer £750 million ($1.27 billion) of its property portfolio to a joint venture with its pension fund to help close a £1.2 billion ($2.03 billion) shortfall in its retirement fund.
Marks & Spencer meanwhile has extended an existing property partnership with its £5 billion ($8.45 billion) pension fund for an additional 15 years.
Ireland may means test pensioners
The Irish government is wrestling with the hot political topic of pension cuts in an attempt to create savings across the benefits spectrum.
The Irish Times reported that Social Protection Minister Eamon O' Cuiv had for now ruled out cutting the standard pension rate, but said means testing for those with private pensions was being considered. The standard pension rate in Ireland is €219 ($327.64) a week.
Pensions had escaped cuts last year when the government introduced benefits cuts. They account for €5 billion ($7.24 billion) of Ireland's €22 billion ($31.85 billion) in social welfare costs.
Canadian fund invests in Australian property
The Canada Pension Plan Investment Board (CPPIB) has established a new fund with one of Australia's largest property groups, Goodman Group.
The Goodman Australia Development Fund will have an initial equity commitment of $250 million with a target gross asset value of about $400 million.
CPPIB will hold an 80 per cent majority share in the fund, which will be seeded with the acquisition of Goodman's Kmart development in Melbourne worth $66.3 million.
Goodman Group chief executive Greg Goodman said it was the second fund launched with CPPIB after establishing a China fund last year and secured a funding platform for Goodman's development business over the next two years.
Brazil weighs up pension bills
Brazilian President Luiz Inacio Lula da Silva must weigh up two separate pension bills in the coming weeks - one that would increase pensions by 7.7 per cent and another that would change pensions for employees retiring early.
Only Brazilians who receive pensions exceeding the monthly minimum wage of 510 reais ($330.34) would be eligible for the proposed increase in a bill already passed by senators. The senate also ratified a bill to do away with penalties on those who take their pensions earlier.
According to Bloomberg, presidential advisers were pushing for a veto of both bills as they could add as much as 11 billion reais ($7.06 billion) to the budget deficit, which hit a historical high of 17.1 billion reais ($11.1 billion) in March.
China state pension awards mandate
China's National Council for Social Security Fund has awarded an active European equity mandate to Newton, a unit of BNY Mellon Asset Management.
Institutional investors in the north Asia region continued to diversify their investment portfolios, BNY Mellon Asset Management vice chairman and co-head Jon Little said.
"Our Asian clients have been particularly interested in Newton's thematic investment approach, which has generated strong returns for investors through diverse market conditions," Little said.
Newton manages £1 billion ($1.7 billion) in European equity mandates.
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