Energy group sells ships to buoy funding

The scheme was already benefiting from the interest in loans secured on four LNG carriers as part of a pension funding partnership set up in 2013 to push the scheme towards self-sufficiency.

The company will use around $100m from the sale to reduce some of its debt, but the majority of the proceeds from the sale will be used to pay down the pension deficit, a spokesperson for the company said.

In a statement announcing its full-year results, the company said: “The LNG carriers are currently associated with a pension funding partnership, which is one element of the group’s funding arrangements for the BG Pension Scheme. Consequently, the majority of the proceeds from this sale will be utilised to support the funding of that scheme.”

The funding partnership was set up as part of an agreement following the 2011 actuarial valuation, which found the scheme was 79 per cent funded, a decline from its fully funded status at the turn of the century.

• The company paid the scheme £27m annually from 2011 to 2013. In March 2013, a valuation found the scheme’s funding level had dropped further to 70 per cent.

• BG Group acquired an interest in the funding partnership for £110m in December 2013. It also contributed £350m to the scheme, which was used to purchase an interest in the partnership.

• The partnership will pay £33m to the scheme annually for 15 years until 2028, when it will pay £172m to fund any remaining deficit.

Vicky Carr, partner at law firm Sackers, said such a pension funding partnership – a type of asset-backed structure – was a common way of funding schemes with a deficit.

“The assets in the partnership will kick off an income,” she said. “It’s a way of funding the deficit using assets that are already in the employer’s books, but it gives you a day-one reduction in the deficit.”

Employers and schemes have been exploring ways to use such assets to help boost funding levels, with previous deals having included whisky and cheese as assets.

Before jettisoning some of its ships, BG Group had previously generated an operating gain of $154m when it closed its DB scheme to future accrual on December 2013.

The company sold the ships, the Methane Becki Anne and the Methane Julia Louise (pictured), at the end of last year before leasing them back for nine and 11 years, respectively. There is also an option to extend the lease by three or five years.

Lynda Whitney, partner at consultancy Aon Hewitt, said: “Sell and buyback... is something we’ve seen before and is an alternative to the asset-backed contributions.” She added: “Often, trustees prefer to get cash.”