Private-equity-owned healthcare and pharmacies group Alliance Boots has offloaded £300m of pension liabilities to a specialist pensions insurance group in a bid to cap its pension responsibilities.
The Pension Insurance Corporation (PIC) is taking over the management of the old Alliance UniChem scheme, which has about 3,000 members.
Alliance Boots said the deal was part of "efforts to ensure long-term security of accrued benefits for its defined benefit pension funds". Members of the scheme will be given individual insurance policies by PIC, and the Alliance Boots scheme will be dissolved.
In a statement the company hinted that it is considering similar moves for its other pension schemes. It said it is "working with the trustees … to ensure that members' pension obligations continue to be suitably funded and secured". A spokeswoman refused to provide details.
The costs of final salary schemes have risen dramatically in recent years as a result of tax changes, low interest rates, poor investment returns and increasing life expectancy. Last year Barclays told 18,000 staff it was replacing their defined benefit scheme with a cheaper defined contribution retirement plan; BP shut its £11bn scheme to new recruits in April.
Alliance Boots, which was formed by the merger of Alliance UniChem and Boots and shortly afterwards acquired by Stefano Pessina and private equity group KKR, said in January that it was shutting down its final salary scheme for 15,000 existing staff to put an end to "funding volatility". Both the Alliance UniChem scheme – the one being transferred to PIC – and the Boots scheme had been closed to new entrants for several years.
Keeping pension scheme costs under control is crucial for private-equity-backed firms, which have to service the huge debts used to buy the businesses.
Boots' move comes just after annual accounts for the private-equity-owned Acromas, the merged Saga and AA group, revealed a top-line profit of £578m. However, accounting charges and interest payments related to its net debt of £6.4bn put the business $500m into the red.
Acromas's pension deficit has risen from £50m to £194m in the past year, and is expected to rise higher when it reveals the results of a triennnial pension valuation in the coming weeks. The group is now squeezing benefits on the final salary scheme and asking staff to make higher contributions to help it cut costs.
Another loss-making private equity business with pension scheme problems is EMI, the music group behind artists such as Lily Allen and Coldplay.
EMI's management had insisted the shortfall in its scheme was just £10m but recently acknowledged that the hole was between £115m and £217m. The pensions regulator is expected to order EMI to increase its payments substantially. EMI says it can afford to pay more but Guy Hands, the financier who acquired it at the height of the credit boom, is asking investors to put up more cash to prevent it breaching its banking covenants.
Pensions expert John Ralfe has warned the higher payments could "break" EMI.
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Post a comment1 September 2010 10:25AM
"Keeping pension scheme costs under control is crucial for private-equity-backed firms, which have to service the huge debts used to buy the businesses."
The ease and callousness of this statement still, after suffering the same fate not once but twice, still manages to stab me to the core. Employees are no-where in this statement. Those who invested their labour in such firms usually factored in the pension which was promised. Yes, promised, in their decision whether or not to join such a firm. And I know now that such promises are as meaningless as the vows offered up by Princes of Wales at their weddings. It all begins to remind me of the bitter and deep cyniscm of the early 60's.