The Staveley Pension Scheme has agreed a new, £73.6m recovery plan with its sponsoring employer after its most recent actuarial valuation found a £100m deficit.
A challenging investment environment has led to many schemes and sponsors increasing the length and value of their recovery plans in an effort to improve scheme funding.
The valuation was completed in December 2013, but the recovery plan was not agreed until earlier this year. Textile manufacturer Coats Group, the sponsoring employer, announced in its full year results in February that discussions were ongoing, but last month announced a plan had been agreed.
It announced the plan consisted of “a £34m upfront payment, drawn from the Company’s parent group cash balance… which has been committed to support the Company’s pension schemes, and annual cash payments to the scheme of £4.4m over 9 years”.
Increased deficit
At the previous valuation in April 2011, which found a deficit of £20m, a £5m upfront payment was agreed, followed by £1.3m a year for eight years starting in July 2012. The scheme’s 2015 valuation is ongoing.
The Pensions Regulator has investigated Coats Group in relation to three of its defined benefit schemes: Brunel, Staveley and Coats UK. The parent group has initiated settlement discussions with the trustees of all three schemes and committed to using its entire cash balance of £342m to support the schemes. This will supply the money for the Staveley recovery plan.
The money came from the sale of shares in around 50 businesses by Guinness Peat Group, as Coats Group was then know, between 2011-2013. The money had been intended for share buybacks and capital returns to shareholders, but this stopped in Q2 2013 when the regulator began its investigations.
The commitment to retain the money for the schemes, however, is contingent on certain principles and conditions, such as the regulator ending its investigations by withdrawing warning notices issued on the three schemes and having sufficient cash to invest in growth opportunities.
Frequent valuations
The Staveley scheme held three valuations over the course of four years, while the DB schemes typically hold actuarial valuations every three years to assess the funding position and agree recovery plans as needed.
However, Richard Murphy, partner at LCP, said powers existed for schemes to call early valuations where they were thought necessary.
“If the circumstances of the pension scheme or the employer change and trustees are concerned that the agreed deficit contributions are no longer adequate, an early valuation can be used to deal with the issues sooner rather than later,” he said.
Lynda Whitney, partner at consultancy Aon Hewitt, echoed this.
“You can see valuations that are very nearly complete, and then something big happens, for example to the company covenant, and then you have to start again” she said, giving the example of a company merger forcing trustees to reassess.
Staveley lengthening its recovery plan reflects a wider trend within DB schemes. The Pension Protection Fund’s most recent Purple Book report on UK schemes showed recovery plans in the latest tranche were longer than six years earlier.
Last week, in an video interview with Pensions Expert, the Pension Protection Fund’s head of restructuring and insolvency Malcolm Weir said: “We would like to see shorter recovery plans, if possible,” but added that it was important to “balance the amount of money that a company has”.
