Companies Using Less Cash for Pension Shortfalls: Pricewaterhouse Coopers

Lucas Gilmore, “Big 4″ observer
August 31, 2010 /

According to an analysis by Pricewaterhouse Coopers, over the next year companies who want to repair their defined benefit pension scheme deficits will be inclined to use assets more than cash contributions. The firm’s analysis is showing that more than a fifth of the FTSE 100 companies has being using a form of asset to cover its pension scheme deficits, whether by holding it as an intermediate vehicle as a contingent security payment for a future event or paying it directly into the pension scheme. Over the last year, such asset deals have been estimated to be worth £8 billion. An estimated £12 billion of direct cash contributions has been reported in the analysis. The PwC analysis has shown that 30 FTSE 100 companies are seemingly considering non-cash financing solutions. This indicates that for financing pension shortfalls, companies are choosing assets to overtake cash, which means that a “tipping point” has been reached. The analysis has predicted that more than £10 billion will be done in asset deals over the next year. Cash contributions, on the other hand, will drop from the recent high level they enjoy. PwC pensions partner and chief actuary, Raj Mody has said that “companies are having to do more to prove the strength of their business to trustees”. When non-cash funding is opted for, the pension scheme directly receives the assets or it is used as security payable in case a default or insolvency occurs. The trustees can defer or reduce demands for cash contributions because of the enhanced value and security. The assets that are being used are from commodity classes, including brand royalties, receivables, bonds, real estate, stocks or subsidiaries. This means that management of the valuation and assets can be a complex task


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