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For the pensions Bubbas

So, Wincanton has managed to turn a £120 million (ish) pensions deficit into a £3 million surplus in 3 years. I assume that’s because of changing interest rates.

The larger issue though here is that as this result – the pensions are now fully funded – isn’t particularly a result of anything Wincanton has done but is macroeconomic then and therefore we’re going to see similar results from other companies as their pensions funds come up for their 3 year valuations. The interesting speculation is therefore to think about who else might be affected by the same issue? One obvious candidate is BT but there are other companies out there which are heavily weighted down by their pensions funds.

Yes, obviously this is good for Wincanton shareholders – but the interesting game is going to be researching who else is going to gain the same benefit from rising interest rates?

So, anyone care to tell us?

12 thoughts on “For the pensions Bubbas”

  1. BT is a microcosm of Great Britain: consistently underperforming despite the optimistic promises of senior leadership, up to its eyeballs in debt, so woke it can barely see straight, and actively targeted by foreign asset strippers.

    Otoh, their shares are up by a couple of pence today.

  2. British Airways was often described as a pension fund with an airline on the side. Don’t know how true that is these days, since the merger with Iberia to form IAG.

  3. 15 Year gilt yield is a driving factor when calculating transfer values and hence a pension funds liabilities. A transfer value is an indication of the cost of providing the pension. Low yields mean high transfer values and high yields low ones.
    15 year gilt yields were 0.34% in July 2020. Now they are 4.62% so this reduces the pension funds’ calculated liabilities and removes the deficit.

  4. @Andyf

    Let’s not forget that most DB schemes are heavily into bonds / LDI strategies so the increases in yields have an offsetting effect in the value of assets too!

    However you are of course correct that most schemes were not fully hedged and therefore gained more from the fall in liabilities than they lost from the fall in assets, this a significant proportion of schemes now have a surplus, depending on the valuation basis.

  5. One wonders what the state of the BHS pension fund is these days. After all, if its back in surplus, could Phillip Green ask for some of his money back?

  6. Will the companies sell off their newly adequately funded schemes to the insurance/pension companies that specialise in the biz?

    In this morning’s Telegraph, Jeremy Warner on a pensions episode I didn’t know about.

    “Woe betide any party that attempts to fiddle with the benefits [National Insurance] is supposed to provide, as indeed John Major’s government discovered to its cost when it proposed to put the state pension onto a fully funded basis. This was actually a remarkably good, if initially extremely costly, idea which if enacted would have forestalled today’s cries of anguish over the affordability of current pay-as-you-go arrangements.

    But it was ruthlessly and opportunistically attacked by Tony Blair as privatisation of a sacred right.”

    Zat right?

  7. The number of pension schemes in a position to enter a buyout with insurers has increased significantly, so the volume of these transactions will continue to increase.

    The key barriers to this are 1) the availability of resource and capital in the insurance sector to undertake these transactions and 2) the suitability of assets currently held by pension schemes which often contain illiquid assets which they had planned to sell down over the next x years when they had previously targeted being in a position to buyout.

  8. “One obvious candidate is BT ”
    A lot of BT DB pension payments are RPI linked. Interest rates are high, great; prices are up, not so good.

  9. BT were one of the first DB schemes to match assets and liabilities using bonds, so I’m sure they have a high allocation to inflation-linked debt

  10. A lot of BT DB pension payments are RPI linked. Interest rates are high, great; prices are up, not so good.

    I’m not familiar with the details of the BT scheme, but they’d be almost unique in offering full and unconditional RPI (or CPI) linkage. Nearly all commercial DB schemes have a cap (usually 3 or 5%). Historically (thinking back to the 10% inflation of the 70s and 80s), many companies made ex gratia increases in pensions to match inflation, because all then-current employees were scheme members. But today, with most schemes being closed, nobody (except the government) can justify doing this.

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