On the go: Industrial company Melrose is to further its commitment to cutting the GKN pension deficit by pledging an additional £100m of money raised from the sale of one of its subsidiaries.
The GKN schemes, which are closed to new members and to future accrual, have total assets of £2.6bn and a net deficit of £199m as of December 2020, down from £468m in December 2019.
The pledge to cut the deficit of engineering company GKN’s four defined benefit schemes was vital to Melrose completing its hostile takeover of the company for £8.1bn in 2018, when the deficit on a gilts flat basis was £1.1bn.
The additional £100m raised from the £2.6bn sale of Nortek Air Management to a Chicago-based company will bring the deficit down to around £200m.
It is part of an agreement struck with the GKN schemes’ trustees to contribute 10 per cent of the disposal of GKN business and 5 per cent of the disposal of non-GKN businesses to the GKN schemes, in place until the GKN schemes achieved their funding target.
That target was gilts plus 25 basis points for the GKN UK 2016 scheme, and gilts plus 75bp for the GKN Group Pension Schemes (Numbers 1-4).
The company’s most recent annual report shows that the target had been reached for the former in December last year, with the funding ratio now standing at 115 per cent, while the funding ratio for the latter is at 93 per cent.
“In spite of the difficulties presented by the Covid-19 crisis, our excellent track record in improving the funding position of pension schemes under our stewardship has continued at pace,” the report stated.
“We are delivering on our commitment to GKN pension members ahead of schedule by significantly reducing the accounting deficit in their UK DB pension schemes to just over £100m, which represents a reduction in the accounting deficit of more than 80 per cent compared with pre-acquisition.”
The GKN UK DB schemes “had been chronically underfunded” prior to Melrose’s acquisition of the company, and its “proactive, transparent and constructive” dealings with the trustees during the acquisition bolstered its tradition of strengthening the pension schemes of the businesses it acquires, the report continued.
“Prior to acquiring GKN, we committed to providing up to £1bn of funding contributions, doubling annual contributions to £60m, and providing £150m of upfront contributions.”
