Partner Anne-Marie Winton comments in Pensions Expert on trustees using alternative funding methods to give DB employers relief
Trustees of defined benefit schemes are being asked to make tough decisions as to whether to allow employers to change their scheduled contributions, amid the lockdown-driven economic crisis. Could changing the employer assets over which they have security help bosses free up the cash to stay afloat?
Alternative funding methods have been a popular tool in the DB practitioner’s toolkit over the past decade. A look through the Pensions Expert archives reveals a slew of employers pledging escrow accounts or setting up special purpose vehicles in 2015 and 2016, with paint manufacturer AkzoNobel setting up an escrow account as recently as last year.
These assets act as guarantees of member security, but some have suggested that if trustees release exchange liquid assets for alternative arrangements, companies could tap a fresh source of pandemic liquidity without endangering member benefits.
A spokesperson for the regulator said trustees should continue to apply the same principles they are expected to follow when first deciding to accept a cash alternative – the asset must be sufficiently robust and have a realisable value that compensates for the extra risk they are taking in their funding plans or investment strategies.
Anne-Marie Winton commented that she suspected these opportunities could be few and far between.
“Is it likely that there is an unencumbered asset that can be made available?” she asked. “What’s the likelihood that businesses have freehold properties [that are not already mortgaged]?”
Read Anne-Marie’s comments in Pensions Expert.
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