July 2009
'BAE pension deficit soars by £1bn in first half' Simon Banks is quoted:
Punter Southall principal Simon Banks said the position could have been worse had falls in the price of corporate bonds not pushed up the interest rate used to discount scheme liabilities.
He said: "Had bond yields not reached eleven year highs, the picture could have looked a lot worse. What we've seen with yesterday's announcement by BAE systems and others this week is this situation starting to unwind, to the detriment of company balance sheets."
Banks added: "What BAE systems' situation also illustrates quite clearly is that as a pension scheme grows you can reach a situation where there are really two quite different businesses, both important – in this case a defence business and a pensions business.
You could see investors wanting separate accounts for each, to better understand this combination of two very different economic entitles." Professional Pensions, 31 July 2009
'Officially the fastest actuary' Emily Adams comments:
"I think the JP Morgan Corporate Challenge is such a great event and I was really hoping to win again this year. My strategy was definitely to keep ahead for the whole race. As well as the run, I also find the event loads of fun." Professional Pensions, 30 July 2009
'Punter Southall outsources software to ITM' Richard Thomas comments:
"Ultimately IT development projects are best handled by IT experts and ITM is the leading firm in this sector.
"By forming this partnership we know clients will be getting access to the best possible IT development service, leaving Punter Southall to focus on our core area of expertise: managing pension schemes and keeping clients and members happy." Professional Pensions, 30 July 2009
'Keep it clean' David Watkins comments:
"Anything that improves the knowledge and confidence of the buyout provider will help to manage the cost of a potential buyout. Providers will often levy a risk premium, the level of which is dependent upon their view of the data's accuracy. Inaccurate data reduces confidence and introduces the risk that liabilities can be understated, therefore driving an increased buyout cost. If trustees can demonstrate that their data quality is high and that they have a clear understanding of their mortality risks and claims history for example, then it can help the provider to ensure that they price more accurately." Engaged Investor Online, 28 July 2009
'British Airways DB scheme to release £330m back to airline' Danny Vassiliades comments:
"The bank guarantee given up by the trustees was a contingent asset – effectively insurance – that would have paid out on BA's insolvency.
"They appear to have concluded that the balance of members interests lies in giving up this insurance which would not have met the full shortfall in the scheme, to reduce the risk of insolvency occurring." Professional Pensions, 23 July 2009
'Insolvency risks in PPF levy adjusted' Kevin Burgess comments:
"Companies in struggling industries could be the worst hit by an increased levy at a time they can least afford it. However, there is still time to improve the failure score before March 31, 2010, the next key date for PPF levy purposes." Pensions week, 22 July 2009
'Sarasin cuts pension payments to save staff ' Danny Vassiliades is quoted;
Danny Vassiliades, head of corporate advice at Punter Southall, points out that companies that are struggling will look at any number of possibilities open to it to save money. "If the company has an open final salary scheme, they will close it. If the pension fund is closed, they will stop future accrual. And if they have got a defined contribution scheme, they will think about reducing the contributions they make,” he says.
Companies are gambling that employees value their immediate pay more than they do their long-term benefits, he adds. “They are not going to suffer the pain of having a lower pension for some time, whereas if companies cut pay by 10 per cent their employees feel that hit immediately. “Some employers have decided it is easier for employees to accept the loss of a long-term benefit rather than an immediate one." Ignites Europe, 21 July 2009
'Industry opinion on the deal's implications' Simon Banks comments:
"Capital requirements were a key driver for the transaction. A quarter of UK pension schemes by size are backed by a financial services firm. We expect this sector to be behind many scheme closures and to be particularly active in the nascent longevity swap / DIY buy-in market." Pensions Week, 20 July 2009
'BA raises £600 million to weather downturn' Danny Vassiliades is quoted:
Danny Vassiliades, a principal at Punter Southall, a pension consulting firm, said BA pension plan trustees may have concluded the bank guarantees were not enough to cover the pension fund deficit in any case.
"Had BA gone insolvent with a big enough deficit in the scheme, the guarantee would have benefited the Pension Protection Fund rather than members," he said, referring to a British government program. International Herald Tribune, 18 July 2009
'BA averts cash crisis' Danny Vassiliades comments:
Willie Walsh, chief executive, said the reinforcements left BA with 'a cash position stronger than many of our competitors and we also have 1.9bn of financing for aircraft something many competitors still have to address'. The new funding came alongside the early posting of BA's first-quarter results to June 30, showing a 100m operating loss versus 35m profits last time on revenues down 12pc to 1.98bn. Despite a pension fund deficit expected to top 3bn, the trustees have agreed to relinquish $540m (331m) of BA guarantees payable if the airline went bust. BA has access to this cash until June 2012.
Asked what the trustees got in return, Mr Walsh said: 'They have done this because it's in their interests that BA is seen to be strong.'
Danny Vassiliades at actuaries Punter Southall said the trustees seemed to have 'concluded that the balance of members' interests lies in giving up this 'insurance', which would not have met the full shortfall in the scheme, to reduce the risk of insolvency.' Mr Walsh denied he had over-egged the cash crisis facing BA to persuade the unions to cut jobs and pay. 'No, we haven't,' he said. 'We told it exactly as it is. Making a loss in our first quarter, which is our second strongest, is not an acceptable position to be in.' Daily Telegraph (web), 17 July 2009
'RSA Insurance Group's deal with Goldman Sachs represents the first 'synthetic' pension scheme buy in' Matthew Furniss comments:
"The RSA Insurance group deal with Goldman Sachs' Rothesay Life unit today represents the first synthetic or 'DIY' pension scheme buy-in. It has effectively removed part of the scheme's unrewarded risks (interest rate, inflation, and longevity) through a series of swap contracts.
"This type of action has the potential to become a viable alternative for many schemes to the standard buy-out or buy-in, particularly given the recent increases in buyout prices observed and the hit on pension schemes' asset values following falls in equity markets. A core benefit from deals such as this is that schemes do not have to hand over large amounts of assets upfront, ensuring that they can de-risk immediately while at the same time maintaining control of the scheme's assets. But in considering such a move, trustees need to take clear advice on the design and pricing of swaps particularly in comparison with buy-out prices and scheme funding reserves." Human Resources Magazine UK, 15 July 2009
'Punter Southall outsources software development to ITM' Richard Thomas comments:
"Ultimately IT development projects are best handled by IT experts and ITM is the lending firm in this sector
"By forming this partnership, we know clients will be getting access to the best possible IT development service, leaving Punter Southall to focus on our core area of expertise: managing pension schemes and keeping clients and members happy." Professional Pensions, 9 July 2009
'Pensions – a crisis update' Simon Banks comments:
"Most organisations would not describe themselves as specialists in life expectancy, but there is a good opportunity here to offload what is really the greatest non-core risk that you would see in a pension scheme" comments Simon Banks, Principal, Punter Southall Transaction Services. Treasury Today, 1 July 2009
'Buying out buyout' Richard Jones is quoted:
Punter Southall principal Richard Jones believes schemes have already seen the last of such low quotes. He says: “The good pricing was a factor of lots of people trying to get a foot in the door. They had to write a few deals to show that they were credible and that was the key driver. I think over the past six to nine months that pricing has changed. In any case, three or four lead players in the market is still enough to provide competition.” Pensions Insight (Web & Print), 1 July 2009
'What price money?' Matthew Furniss comments:
“We’re in very uncertain times at the moment, because of the amount of money that has flowed into the system and its unknown impact. It’s possible inflation could be higher, but it could also be lower,” says Matthew Furniss, senior consultant at Punter Southall. Pensions Insight (Web & Print), 1 July 2009
'The pensions regulator's prudent funding and recovery plan guidance' Danny Vassiliades quoted:
Danny Vassiliades, principal and head of corporate advice at Punter Southall, focused on employer actions: "Employers need to focus on their case for reducing cash contributions on the basis of affordability. Therefore, employers should make trustees aware of their affordability constraints and disclose whatever projections appear necessary to make their case.” Pensions Insight (Web & Print), 1 July 2009
'News in Brief' John Prior is quoted:
The high cost of public sector pensions can also put off potential bidders for outsourced government services such as Royal Mail, according to John Prior, principal at Punter Southall. He said the problem has "far-reaching implications" for the debate on public sector pensions. Pensions Management, 1 July 2009
'Critical Time for DB' Simon Banks comments:
"Banks are generally required to carry extra capital to protect against pension risk, over and above their scheme contributions. When capital is tight, this 'hidden' pension cost assumes greater significance. The action taken by Barclays should reduce the capital required to back future promises. I wouldn't be surprised if other banks took similar action." Pensions Management, 1 July 2009
Punter Southall Pensions Bulletin - July 2010