Human Capital & Careers

Everything Must Go

Potential new rules on valuation quicken the pace of UK companies offloading pension schemes.
Tim BurkeFebruary 29, 2008

For a company that runs casinos, bingo halls and online gaming sites, the UK’s Rank Group doesn’t like taking gambles. According to finance director Peter Gill, the company’s decision this week to offload its £700m (€917m) pension scheme—the largest ever “pension buyout” in the UK—gives members of the plan greater security and frees the struggling company to focus on its own problems. Rank expects to receive about £20m from the fund’s surplus that it can use to pay down debt.

As reported in the February edition of CFO Europe, the UK’s burgeoning pension buyout market is opening up new opportunities for finance chiefs fed up with their funds. Companies ranging from publisher Emap to shipping company P&O have jumped at the chance to have a third-party insure their pension plan—sometimes for a fee, sometimes not—taking it off their own balance sheet. Risk management consultancy Aon says the market was boosted by several large deals at the end of 2007.

Other companies are likely to follow Rank, Emap and P&O. Recent suggestions by both the UK’s Pension Regulator and the Accounting Standards Board to change the calculation rates for valuing pension liabilities could hit companies hard. In research published by RBC Capital Markets, consultant John Ralfe claims that telecoms group BT, for example, could see its liabilities instantly rise to £45.9 billion, from £38.8 billion, under the new proposals. BT’s market capitalisation is currently around £18 billion.

If a company like BT decided to shed its massive fund, would there be any takers among the pension buyout providers?