29 Sep

Asset-backed arrangements set to increase on dismal triennial valuations

first_imgThis has added around £2bn (€2.4bn) to the value of ABC arrangements, taking the total to more than £7bn.The firm expects this year to add substantially more given the funding situation from 2013 triennial reviews.Actuarial funding levels for schemes with 2013 dates, which will be finalised this year, will see substantial falls due to market conditions.The fall in funding for schemes that ran valuations in 2009 and 2012 was not as drastic.David Fripp, pensions partner at KPMG, said market conditions were still partly responsible for last year’s growth.“These conditions have persisted into 2014, and we’re finding that increasing numbers of companies and trustees are turning to ABCs to fund part or all of their deficits,” he said.KPMG also said the expectation of rising Gilt yields would make the arrangements even more popular.Schemes are concerned about current ‘artifical’ deficits and future surpluses, which can be alleviated by ABCs.KPMG’s analysis also found the average size of ABC arrangements fell substantially as popularity increased, as smaller schemes gained access to the option.The average ABC value between September 2012 and October 2013 was just £83m compared with £141m in 2010-11 and £323m in 2009-10.This was combined with an increase in the proportion of scheme assets being used.Five arrangements were valued at more than 20% of scheme assets in 2013, compared with two in 2012, and one a year earlier.Also increasing in popularity were longer-term arrangements, with 2013 seeing three deals reach the maximum 25 years.Five ABCs were put in place with terms ranging between 20 and 25 years, the first in more than two years.KPMG said updated guidance from the Pensions Regulator (TPR), released last year, would also increase interest in ABCs.Fripp added: “The guidance provides a helpful framework for companies and trustee boards to assess ABC proposals, which may make the implementation process more straightforward.” The use of asset-backed funding arrangements in UK pension schemes is expected to grow further this year after 2013 saw a substantial rise in the number of arrangements.Research by consultancy KPMG showed there were more than 20 arrangements put in place in the year from October 2012, accounting for almost half the number of deals to date.Its analysis found 13 deals were announced in the first half of 2013, the highest for any half-year.By comparison, only five were announced in the same period in 2012.last_img read more