Thursday, June 29, 2006

[IWS] Mercer (UK): Pension Financial Risk--Survey of FTSE 350 Companies [28 June 2006]

IWS Documented News Service
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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations
-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor
---------------------- Stuart Basefsky
New York, NY 10016
-------------------------------Director, IWS News Bureau
________________________________________________________________________

Mercer (UK)

Pension financial risk ­ survey of FTSE 350 companies
UK
London, 28 June 2006
http://www.mercerhr.com/pressrelease/details.jhtml/dynamic/idContent/1231860

   * 60% of respondents have made ‘special’ pension contributions in the last year
   * Use of derivatives to hedge liabilities has shown limited growth so far
   * Over half have increased the longevity assumptions they use to calculate pension liabilities

Last year, 60% of companies made ‘special’ pension contributions - over and above normal or statutory contributions - to help plug their scheme deficits, according to a survey by Mercer Human Resource Consulting and The Association of Corporate Treasurers. CFOs and treasurers in over 100 companies, most of which were in the FTSE 350, participated in the survey.

The greatest driver for these payments were scheme-specific funding requirements (30%), whereby companies have to top up under-funded schemes to reduce their deficits, and general risk mitigation (25%). Few companies (7%) made special contributions purely to reduce their Pension Protection Fund (PPF) levy or for tax reasons (7%).

Mr Keogh, Worldwide Partner at Mercer, commented: “It is interesting that scheme-specific funding was the primary reason why companies made additional pension contributions last year, as the relevant legislation was technically not in effect, but clearly having an influence. This year we are likely to see more companies following suit.”

According to the survey, only 12% of companies undertook a specific financing agreement, for example taking out a loan, to fund a special contribution. Nevertheless the finance must have come from somewhere, and the special pension contribution will have been a factor in overall cashflow planning. “Borrowing money to fund a pension scheme involves paying back a loan by raising another. There can be tax benefits to doing this, which some companies seem to be taking advantage of,” said Mr Keogh.

AND MORE....
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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
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