International

By Natalie Cogan
Thu 02 Sep 2010

HSBC finds novel way to plug pension deficit; BBC may face strike over proposed pension cuts; Norway taps Asia investments

FTSE 100 firms tackle deficits
Great Britain's biggest companies are getting creative in tackling their pension fund deficits.
FTSE 100 firms shelled out a record £17.5 billion ($30.2 billion) into defined benefit schemes in 2009 - 50 per cent more than the previous year.
In its Accounting for Pensions 2010 report, consulting group Lane Clark & Peacock (LCP) said the unprecedented payout combined with stronger investment returns helped push the collective FTSE 100 deficit down to £51 billion ($88 billion) from its record £96 billion ($165.7 billion) in 2008.
The biggest payout was made by Royal Dutch Shell at £3.3 billion ($5.7 billion), while Lloyds Banking Group and Royal Bank of Scotland paid over £1 billion ($1.7 billion) into their schemes. Eight top British companies, including British Airways and Rolls-Royce, all paid more to their pension schemes than they did to their shareholders in dividends.
More companies are using alternatives to cash funding to plug pension gaps. Drinks group Diageo is using maturing whiskey as collateral and recently Marks & Spencer and Tesco's used property transactions.
"In the wake of the financial crisis, pension scheme trustees have sought more money from their sponsoring companies to fund soaring pension deficits, leading to a record level of contributions last year. While this is reassuring for scheme members, such increases in contributions reduce the scope for companies to pay dividends and to invest in their businesses," LCP partner Bob Scott said.
Nearly a quarter of all FTSE 100 companies have announced changes to their schemes since the beginning of 2009.

HSBC finds novel way to plug deficit
HSBC has transferred £1.7 billion ($2.9 billion) of debt-based assets to its pension scheme as part of a restructure of its United Kingdom  scheme deficit reduction plan.

The plan allows the bank to contribute assets from its own portfolio, including government and corporate bonds.
The move has a double benefit as it effectively reduces the cash the bank needs to hold on its books to balance its debt assets. HSBC has an estimated £3 billion ($5.2 billion) pension deficit.

US pensions insurer faces mounting costs
Government-sponsored United States pensions insurer Pension Benefit Guaranty Corporation (PBGC) has announced shortfalls in its multi-employer program.

PBGC's multi-employer program is the smaller of its two insurance programs, insuring 1500 plans, compared to the 27,600 plan single-employer program. However, the plans are around six times as large. Multi-employer plans are common in industries such as construction, textiles and mining.
Future plans may need some financial assistance. The estimated present value of non-recoverable future financial assistance is US$2.3 billion ($2.6 billion), while the program has less than US$1.5 billion ($1.7 billion) in assets and a deficit of US$869 million ($966 million).

BBC may face strike over proposed pension cuts
The pension benefits associated with a lengthy career at the BBC are no longer a given.

The BBC is reassessing the meaning of a pensionable salary as it seeks to reduce the £2 billion ($3.45 billion) deficit in its scheme.
BBC proposals to cap increases in pensionable pay at 1 per cent a year - regardless of actual pay increases - is facing stiff opposition from employees. Plans are also underway to link the pension cap with any new pay deal offered to employees.
The broadcaster's pension fund trustees will meet with employees in September, but employees are set to vote on strike action before then. Broadcasting unions have already called the plans "pensions robbery".

Norway taps Asia investments
Norway's sovereign wealth fund, the Government Pension Fund Global, second in the world only to Abu Dhabi's, will boost investments in Asia, Bloomberg has reported.
Norges Bank Investment Management (NBIM), which manages the fund, set up a Singapore office in June with around S$1.5 billion ($1.2 billion) invested in Singapore. The fund has had an office in Shanghai since 2007.
NBIM governor Svein Gjedrem said the Singapore office would help strengthen operations in Asia.
"Having a presence in a region with strong economic growth is important for achieving good management results," Gjedrem said.
The sovereign wealth fund is also known as the Petroleum Fund as its backing comes from oil profits used to boost government savings to meet the rapid rise in public pension expenditures. As of June, the fund had a market value close to NOK2800 billion ($498.8 billion) and is Europe's largest equity investor. Some 60 per cent is invested in equities, of which European stock markets account for 50 per cent. Around 10 per cent of the fund is invested in Asia and 15 per cent of its equity investments are in Asian companies.

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