Supermarket chain Morrisons has transferred a further £150m worth of property into an asset-backed funding vehicle in a bid to improve security for its pension scheme.
The retailer has topped up its Scottish limited partnership, a form of asset-backed funding whereby an employer transfers assets into the vehicle to provide the scheme with an income or to inflate its funding level.
The arrangements protect employers against trapped surpluses, where the scheme goes into surplus and the employer is unable to recover previous contributions from it.
Earlier this year, pest control company Rentokil set up an escrow account to prevent trapped contributions as the scheme reached surplus.
While the establishment of SLPs is relatively common, industry experts say it is rare for an employer to top up an existing vehicle.
Morrisons originally set up the partnership in 2012-2013, contributing £90m of property assets that will pass to the scheme’s ownership should the group become insolvent.
Graham Sutch, scheme secretary at Morrisons, said the latest top-up would provide the scheme with an income over 20 years. He said: “It’s additional security rather than additional contributions, in the form of several stores.”
In January this year the group reached an agreement with scheme trustees to close to future accrual following consultation with the members.
The scheme closed on July 5 and the group agreed to contribute the property assets as additional security.
SLP popularity
Brian Peters, partner at consultancy PwC, said SLPs were relatively common, with around 50 carried out in the UK so far.
“It’s commonly done as a way of providing additional security to trustees, while allowing the company to defer paying cash to the scheme,” he said.
He added he was only aware of one or two schemes that had topped up their partnerships with further assets following their creation.
“A small minority of companies have done this,” he said. “Any solution will be customised to the organisation’s specific issues.”
Rosalind Connor, partner at law firm Taylor Wessing, said schemes should consider using existing partnerships on an ongoing basis for contributing or adding security.
She said: “The point about setting up one of these arrangements is they only make sense if you’re a large scheme and you’re putting a lot of funds in there.
“It’s a complex structure and there are a lot of hurdles to jump to make sure it operates properly.”
Connor added: “Having an SLP in place is a sunk cost anyway. My instinct is that these guys are being quite smart.”
