Pan-European foundation statute inches towards final vote

first_imgThe tax provisions contained in the proposal for a European Foundation Statute (EFS) have been withdrawn, following a meeting of COREPER ­– the group of EU member states’ political representatives – on 8 November.The EFS proposal, currently going through the EU legislative process, establishes a constitution for a pan-European foundation (FE) operating across borders, removing the requirement for foundations operating in different jurisdictions to set up separate legal entities in each country.It is generally supported by the European foundation sector because it would provide a single set of rules for European foundations, helping to reduce the costs and uncertainty involved in cross-border activities.It could also stimulate cross-border donations, and provide a level of transparency and accountability to individual foundations set up under its framework. 

 It would not, however, replace existing national laws, but would be optional and complementary.The tax elements in the original proposal provided for automatic equivalency between FEs and national foundations, which would have included access to tax breaks where these are available to public benefit entities in individual countries.But they have been a major stumbling block in the path towards achieving directive status, with some experts warning that the provisions threaten to halt its progress at the final hurdle.http://www.ipe.com/european-foundation-statute-may-be-in-peril-expert-warns/53706.articleThe European Foundation Centre (EFC), which advocated the case for an EFS for several years, said the recent changes would lead to “a good compromise text”, taking on board views from the foundation sector to produce an accessible and trustworthy legal tool, and also taking a pragmatic approach on issues including proportionate audit rules, disbursement practices and economic activities.However, Emmanuelle Faure, European affairs senior officer at the EFC, said: “While the withdrawal of the tax provisions is viewed as a welcome compromise by the vast majority of the member states, it may lead a few others to question the value of the revised proposal.”She added: “There is certainly no doubt in the sector. The sector is sending a strong signal to the European Commission, the EU Presidency and national ministries that it wants no further delay on the statute and urges them to adopt it by the end of 2014.”Work on producing a text that is more likely to get unanimous approval had accelerated over the summer.The decision to drop the tax provisions followed the presentation of a compromise text by the Lithuanian EU presidency to member states’ technical experts in early September.Other changes included a more restrictive approach to the formation of FEs, especially in relation to mergers; the redrafting of annual disbursement provisions; and the clarification that normal asset management is not an economic activity (which could otherwise affect the non-profit making status of foundations under the directive).The EFC is now calling on foundations throughout Europe to ask their own national government and permanent representations in Brussels to back the statute, by 31 November.http://www.efc.be/news_events/Pages/European-Foundation-Statute-Members-States-take-unanimous-stance-on-tax-issues–.aspxThe Lithuanian EU presidency will redraft the EFS proposal for review by national experts on 6 December, with the focus on the non-tax-related provisions.The final step in the process to create a regulation will be a vote by all 28 member states, which must be unanimously in favour for the proposal to become law.last_img read more

UK institutional investors demand return to prudent accounting

first_imgInvestor frustration with International Financial Reporting Standards (IFRS) and the UK accounting establishment has reignited with demands from three major institutional investors for the International Accounting Standards Board (IASB) to reintroduce an explicit reference to the notion of prudence into its conceptual framework.The move follows the release of a barrister’s opinion earlier this year by the Local Authority Pension Fund Forum and other major institutional investors in which George Bompas QC argued that there were substantial legal flaws with IFRS.In a letter obtained by IPE and addressed to senior officials at the UK Financial Reporting Council (FRC), investors also point to the true and fair view override, as well as the concept of capital maintenance, as further areas of major concern for investors.The three signatories to the 25 November letter – the Association of British Insurers, the Investment Management Association and the National Association of Pension Funds – collectively manage some £7.2trn (€8.7trn) of assets. Addressing the topic of prudence, the ABI, IMA and NAPF write: “As applied in accounting, we consider prudence to be a fundamental qualitative notion for guiding issuers (and auditors) when exercising (or assessing) aspects of accounting that require judgement, or where adherence to [IFRS] might otherwise result in outcomes that are misleading.”The letter continues: “We believe it materially correct to err on the side of caution – i.e. be prudent – in the face of uncertainty at an individual item level and view prudence as a predisposition.”The IASB removed references to prudence, or caution, from its conceptual framework in 2010. It substituted instead the concept of neutrality.The move was intended to bring the IASB’s conceptual framework closer to the US GAAP framework, which makes no reference to prudence.In a recent speech to the Federation of European Accountants, IASB chairman Hans Hoogervorst defended the board’s decision to drop prudence from the IFRS conceptual framework, arguing that IFRS already adopt a prudent approach.In an echo of the controversy sparked by the Bompas Opinion, the investors also called for the FRC to review the status of its 2011 guidance on the requirement for accounts to present a true and fair view of a business’s financial position.The letter reads: “The true and fair override in the preparation of financial statements should not be considered a circumvention of IFRS but a legitimate statutory requirement in ensuring a true and fair view is reached.“The existence of conflicting QC opinions brings urgency to this issue and, therefore, we believe it important for the FRC to review and reissue 2011 guidance document.”Under UK law, Section 393 of the Companies Act 2006 requires company directors to approve only those accounts that present a true and fair view of a business’s assets, liabilities, financial position and profit or loss. Section 495(3) of the Act imposes an equivalent obligation on auditors.The FRC published a guidance document dealing with the notion of a true and fair view in June 2011.The document confirms “the true and fair requirement remains of fundamental importance in both UK GAAP and IFRS”.But in the LAPFF Opinion, George Bompas QC said it was questionable whether statutory accounts prepared in accordance with IFRS “will always give a true and fair view.”The Universities Superannuation Scheme, Threadneedle Asset Management and the UK Shareholders Association joined LAPFF in seeking the QC’s advice on the legality of the IFRS framework within the UK.The FRC hit back on 3 October with its own legal advice: “On the specific issue of its legality, the Department for Business has today confirmed that the concerns expressed by some are misconceived.”The UK regulator agreed, however, that there was scope for improvement in financial reporting and urged the IASB to acknowledge both stewardship reporting and prudence explicitly in the IFRS framework.Finally, in relation to capital maintenance, the investors suggest the FRC conduct research into possible disclosure requirements focused on both the determination of and justification for distributions by companies.The FRC told IPE: “We agree on the importance of prudence and have often urged the IASB to include a reference to it in their Conceptual Framework.”The statement added that the FRC would repeat those calls in its forthcoming response to the IASB’s conceptual framework discussion paper.The FRC statement continues: “We are undertaking a review of our paper on the ‘true and fair’ view. We also have work in hand on reviewing disclosures about a company’s capacity to pay dividends.”Well-placed sources close to the decision to send the letter reflects growing frustration among the UK institutional investor community with the IASB and the FRC.IPE has learned that the task of challenging the accounting establishment has until now proved to be a major obstacle to any lone investor group with concerns about IFRS.The source added that, despite a difference of opinion on detail between the ABI, IMA and NAPF, the investor and practitioner voice has this time been so strong that “some of the technocrats in the FRC” have had to step back and take notice.last_img read more

Dutch coalition party blasts government-backed mortgage bonds

first_imgLiberal party and coalition partner VVD in the Netherlands has said it remains very critical of the National Mortgages Institution (NHI), which is to issue government-backed mortgage bonds to institutional investors. Speaking at the international IIR securitisation event in Amsterdam last week, Roald van de Linde, MP for the VVD, questioned investors’ motives for wanting the government to be involved in the NHI.“It’s either a matter of running less risk or gaining higher returns,” he said.The NHI – still under construction – is meant to relieve banks’ balance sheets, and is expected to attract €50bn of investment from institutional investors over the next five years. “[But] as we understand it,” Van de Linde said, “banks must keep the most risky mortgages, so this won’t solve their liquidity problem.”The liberal MP suggested that foreign investors failed to understand the concept of the National Mortgage Guarantee (NHG), the already existing guarantee scheme for mortgage lenders for properties worth up to €290,000.“Dutch pension funds probably don’t invest in local mortgages because NHG mortgages don’t return enough due to low interest rates,” Van de Linde said.“Mortgages with no or less government backing are more attractive, and yield approximately a 1% higher return.”In his opinion, the market must do without guaranteed mortgages portfolios and come up with its own hedging arrangements.Van de Linde further indicated that the VVD was very worried about the exposure of the Dutch state to the housing market.“We would also like to limit the NHG,” he said.However, the MP added that his party would approach the NHI proposals from the Cabinet with an open mind.Rob Koning, director of the Dutch Securitisation Association (DSA) and closely involved in designing the NHI, stressed that the vehicle was meant for bad times, when the markets were unavailable.“Moreover, we assume that it could take up to 10 years before the €50bn has been invested,” he said, adding that the amount could be raised to €80bn during a next crisis.Koning denied that the current NHI design would pose any risk to the Dutch government.However, he declined to provide further details about the scheme, which is in its final stage of preparation.The NHI will require political backing from not only the Dutch Parliament but also the European Commission.The other coalition partner, the labour party PvdA, said it did support the principle of government-backed mortgage bonds, but it emphasised that pension funds should also be prepared to invest in mortgages without a government guarantee.last_img read more

Danish roundup: LD, PFA, PenSam, Industriens Pension

first_imgDenmark’s DKK50bn (€6.7bn) pension fund Lønmodtagernes Dyrtidsfond (LD) has said it expects to see tough competition between asset managers for the DKK23bn of fixed income mandates it is putting out to tender.Lars Wallberg, LD’s director of finance, said: “We have worked on our investment strategy over the last few years and varied our expectations slightly for the bond portfolio.”LD will target a high level of safety in the portfolio, he said, to avoid exposure to credit risk and price volatility.At the end of April, the fund issued invitations to tender for two DKK9bn Danish high-grade bond mandates and one to tender for a Danish short-term bond mandate. This followed two invitations to prequalify for the investment management of a European corporate investment-grade bond mandate and a global inflation-linked bond mandate. LD said both Danish and foreign managers had the opportunity to make offers to provide investment advice on the mandates that the scheme has now put out as an EU tender.Wallberg said the two mandates for gilt-edged bonds and the mandate for Danish short-term bonds would require a high level of knowledge of Danish bonds, adding that this meant the number of managers applying for the business was likely to be relatively limited.But he said he expected tough competition among managers because these were large, attractive mandates.LD, which receives no current contributions, manages cost-of-living allowances that were granted to public sector employees in the past.Meanwhile, the Danish financial regulator has given PFA’s asset management arm an official order and criticised the firm for paying too much for services from another part of the PFA group.The Danish FSA (Finanstilsynet) ordered PFA Kapitalforvalting (PFA Asset Management) to ensure the agreement with PFA Pension to receive various administrative services includes fees that are set at market rates.The order was given following a routine inspection of the firm.The regulator said: “It is the FSA’s judgement that the company has not focused sufficiently on the fee for services that are included in the administration agreement, and that the fee is high.”It said this meant there was an increased risk the agreement had not been made according to market rates.PFA said it would follow the order but insisted the fee had been in line with the market.In a statement, PFA Kapitalforvaltning directors Jesper Langmack and Poul Kobberup said: “We will obviously listen to the FSA order and in future ensure we can account for the fee in detail, which we believe to be market-based.”They also said they had tried to ask the FSA what it believed would be a correct level of fee, but the authority had not given it an indication of this.Separately, PenSam said it and Topdanmark were jointly investing DKK600m in a residential development of 400 flats in Aarhus.Construction of the planned development in the city’s new harbour-side quarter known as Aarhus Ø is about to start, PenSam said.The first 120 apartments are expected to be ready for occupation in October 2015.Benny Buchardt Andersen, PenSam’s investment director, said: “It is positive that we as a pensions company can support the development of Aarhus by creating attractive homes, which will provide value now and in the future.”He said the investment would mean more employment, high-quality homes for the city and a good return for PenSam’s customers.NCC Construction is to be the lead contractor for the project.Lastly, Industriens Pension said it was making its first property investment in the Aarhus area, putting DKK140m into a new office building currently under construction in Skejby to the north of the city.The property is already pre-let on a 10-year lease to the Danish IT company EG.The pension fund said it would take over the property in the spring of 2015 when it was completed and the tenant had moved in. The property was just under 12,000m2 in size and included underground parking, Industriens said.Peter Frische, head of real estate investment at the labour-market pension fund, said: “This is a modern, flexible and well-located high-quality property with a good tenant and a long lease. The investment will contribute to securing a good and stable long-term return for our customers.”Industriens said it planned to invest DKK5bn over the next few years in Danish property. It currently has DKK2.8bn invested in property funds, primarily abroad. This compares with its total investments across asset classes of DKK118bn.last_img read more

Asset managers criticise pension fund exclusion in systemic risk consultation

first_imgTwo of the world’s largest asset managers have dismissed the exclusion of pension funds in a consultation on institutional systemic risk, as international pressure for regulatory action continues.BlackRock, Vanguard and industry groups dismissed claims pension funds should be exempt from being classed as ‘global systemically important financial institutions’ (SIFIs) as discussions continue on they should be subject to further regulation of capital buffers.The comments came as the Financial Stability Board (FSB) and International Organisation of Securities Commissions (ISOCO) closed its second consultation on methodologies for identifying globally systemic institutions other than banks and insurers.The consultation proposed excluding pension funds when it launched the consultation earlier this year, as it believed funds posed a lower risk to financial stability due to long-term investment plans and their heavy use of asset managers and investment funds. PensionsEurope, the industry representative group, threw its support behind the FSB’s logic.It defended the exemption and said pension funds were primarily governed by social and labour law – with a regulatory framework that required transparency, low leverage and prudent diversification.Vanguard, which has $3.3trn (€3trn) in assets under management (AUM), said the logic for excluding pension funds meant long-tenured mutual funds should also be excluded.The manager said 77% of its assets were held in such funds and it would only be logical to treat pension and mutual funds similarly.BlackRock, an AUM of $4.7trn, said the regulators needed to take a more “holistic approach” which covered activities across the market.The manager said asset managers were just one component and there needed to be a better understanding of asset owners and why they allocated to markets and asset classes.“Regulation needs to be applied across products to be effective. Likewise, investment activities need to be regulated regardless of which entity is managing the assets,” it said.BlackRock added: “Asset managers are not the source of systemic risk. [They] act as agents on behalf of institutional and individual investors and are not counterparty to client trades or derivative transactions and do not control the strategic asset allocation of their clients’ assets.”The UK’s Investment Association (IA), the industry group for the asset management sector, agreed and said all market participants must be considered in its consultation.The IA, however, said pension fund investment strategies, like those of asset managers’, could mitigate threats to financial stability, and it was therefore important to factor in activities and not “exclude ex-ante”.It also said some pension funds employed captive asset managers, pointing out the difficulty in seeing how exemptions from any future regulation would work.“The potential for competitive distortion with non-exempt asset managers is clear,” the IA added.Defending the exclusion, PensionsEurope cited research from the Bank of England and European Commission that said pension funds do not react to short-term market movements nor experience the same issues as other financial institutions during the crisis.“The probability a pension fund fails is very low and rare. They use derivatives only to hedge currency and interest rate risks, and not to speculate,” it said.PensionsEurope also said failure and financial distress of a pension fund does not pose systemic risk because the risks are borne by members or sponsoring employers.It said funds should either be fully funded, or subjected to different requirements to mitigate failure in a case of underfunding.“Potential systemic risks are usually avoided. Consequently, in case of financial distress, other institutions do not bear risks,” it said.BlackRock also condemned the FSB’s blanket approach of looking at AUM to determine systemic importance.The manager said AUM metrics would create false positives and false negatives, and given the transmission channels identified for analysis by the FSB, leverage should be used as a basis over AUM, should the FSB insist on moving forward.last_img read more

APG calls on governments to support green bond market

first_imgIn addition to APG, new signatories include BlackRock and Legal & General Investment Management, Europe’s two largest institutional managers, according to IPE’s Top 400 Asset Managers 2015.Several of the signatories – including AP4, APG and the California State Teachers’ Retirement System – recently participated in a $1bn green bond issuance by the Kreditanstalt für Wiederaufbau, Germany’s state-owned development bank.As of the end of 2014, APG’s green bond portfolio accounted for 0.5% of its corporate bond holdings, or €356m, comprising bonds issued by the European Investment Bank and GDF Suez, among others.Sean Kidney, chief executive of the Climate Bonds Initiative, said there was “enormous opportunity” to deploy green bond financing and cited financing needs arising from individual countries’ pledges to reduce carbon emissions.The organisation also launched a guide in conjunction with the UN Environment Programme (UNEP), detailing how the public sector could grow the green bond market.The guide, ‘Scaling up green bond markets for sustainable development’, urged governments to develop green project pipelines to allow investors to better plan for issuances, and for participation in the Green Infrastructure Investment Coalition – an association launched this year that aims to bring together investors, governments and development banks to discuss projects.Nick Robins, co-director of the UNEP Inquiry, added that the opportunities presented by green bonds had caught the attention of policymakers.“At COP21, many discussions have centred around climate finance and the level of investment needed to bring about low carbon outcomes,” he added.“Green bond market development is seen as a real option. This report can only assist governments, policymakers and ultimately institutional investors in developing sustainable climate finance outcomes.”According to the Climate Bonds Initiative, green bond issuances so far this year have exceeded $41bn.,WebsitesWe are not responsible for the content of external sitesLink to ‘Scaling up green bond markets for sustainable development’ guideLink to Paris Green Bond Statement APG has called on governments to encourage the growth of the green bond market, arguing that a clear regulatory framework would allow it to meet its obligations to beneficiaries.The €402bn Dutch pension manager joined 26 other investors worth a total of $11.2trn (€12.1trn) in signing the Paris Green Bonds Statement, which calls for a “large and robust market that makes a real contribution to climate change”.Coordinated by the Climate Bonds Initiative, the statement is identical to one backed by Sweden’s AP funds published last year.Released as the UN climate change conference in Paris (COP21) nears its end, the statement has attracted the support of 10 new institutions, resulting in a $9trn growth in signatory assets.last_img read more

IORP deal thought to have eluded negotiators despite ‘good progress’

first_imgEuropean Union negotiators are thought to have failed to reach an agreement on the revised IORP Directive at a trialogue meeting that lasted until early morning today (16 June), but, according to the chair of the European Parliament’s economic and monetary affairs committee (ECON), they are “close to a deal”.Robert Gualtieri made the comment in a post on Twitter at around 3:30 CET this morning, adding that the negotiators had made “very good progress”. Brian Hayes, Irish MEP and IORP II rapporteur, had earlier turned to the social media platform to provide an update on the negotiations.  “IORP negotiations continuing late into the night,” he said. “Making progress but still a lot to be decided.”Although neither explicitly stated so, the negotiations – between the European Parliament, the European Commission and member states – are understood to have failed to produce a final revised IORP Directive.IPE contacted Hayes for confirmation but did not hear back by the time of publication.IPE understands that a seventh trialogue meeting is due to take place before the Dutch presidency lapses at the end of June.Slovakia then assumes the presidency until the end of the year.Jeroen Dijsselbloem, Dutch finance minister and president of the Europgroup, had on Tuesday said he hoped last night’s meeting would be the last and that the negotiations were “close to successful closure”.Cross-border funding is likely to have been the main hurdle to reaching an agreement last night, according to a source, having been the most challenging item over the months previous.last_img read more

Finland’s State Pension Fund sets explicit return target for first time

first_imgTimo Viherkenttä“Seventeen years is a long time horizon, but it is not eternal, and it gives us a reason to take a look at tail risks, although we are a long-term investor.”The work on setting the annual return target to achieve this time objective has been occupying staff at the fund for most of this year, he said, but there will still be more discussion about how to adjust the portfolio and ample time to do it.From now on, the starting point for VER in building its portfolio is to find a mix of investments that will fulfil the return target over the long term, Viherkenttä explained.“I feel this is relatively ambitious, as it is not easy to find portfolios that would deliver this,” he said.VER’s investment team is already working on next year’s investment plan based on the real return target.“Tentatively, it looks as if only surprisingly small changes will be needed in spite of the new strategy,” Viherkenttä said.One element of future asset allocation will be to increase diversification in the direction of inflation protection.“One of the main things that will change is we will be looking at including more inflation-linked assets such as infrastructure, inflation-linked bonds and real estate,” Viherkenttä said.“But the main point is to look at how our whole portfolio fares in different environments, so this could mean doing different things, but investments in infrastructure and real estate will play a part.“It’s a mixed picture depending on how the main asset classes such as equities are performing.”Viherkenttä added that the real return target and strategy to reach it would be reassessed every year from now on.“If we had a bad investment year,” he said, “then we would need a higher annual return, so we would probably be increasing the risk in the portfolio, and that’s how it should be because, if stock markets came down next year, it would be a good time to increase the risk in your portfolio. There’s an intrinsic logic to that.”Though the fund has produced good returns over the years, Viherkenttä said it was somehow unsatisfactory that the reasoning for investment choices was not really derived from any concrete aim.“Setting this target has to do with integrity in that you have to base your activities on the very task you have been given,” he said.VER had total assets of €18.5bn at the end of September.For more on pensions in the Nordic region, see stories from IPE’s special report here Timo Viherkenttä, VER’s chief executive, told IPE in an interview: “We have this 25% funding objective we should strive for and now have specified ourselves when we should reach this, and our aim is 2033. The State Pension Fund of Finland (Valtion Eläkerahasto or VER) has come up with an explicit return target for the first time since it was set up 26 years ago, as part of a self-initiated project to firm up its investment aims and increase the integrity of its operating rationale.The fund has an aim, laid down in law, of growing and amassing enough assets to fund 25% of the state’s employee pension liabilities, but until now, the point at which this should happen has not been defined.As a buffer fund with no fixed liabilities or timescale for orientation, and dependent on inflows and outflows VER cannot influence, the fund has so far aimed for fairly generic risk-adjusted returns within the confines of its investment limits.The first target has been set at 3.4% in real terms per year and was arrived at with reference to when the Finnish state’s pension liabilities for its current and former employees – and also public age-related spending more generally – are due to peak.last_img read more

UK roundup: JLT, TPR, Sackers, PLSA, state pension

first_imgThe aggregate deficit of UK private sector defined benefit (DB) schemes increased by more than £200bn (€235bn) in 2016, according to JLT Employee Benefits.The total shortfall was £434bn, the company estimated, compared with £233bn a year earlier.It is the highest year-end deficit JLT has recorded, said director Charles Cowling.This figure peaked at a record £503bn at the end of September as deficits soared in the wake of the UK’s vote to leave the European Union. At the end of 2016, total liabilities reached £1.88trn, while assets hit £1.45trn.Cowling warned that more pension funds would become “a serious threat” to their sponsors’ balance sheets “and, in some cases, the [companies’] ability to pay dividends”.He added: “The tools now exist for an effective de-risking of pension assets and liabilities that, while not promising a silver bullet, do mean pension problems can be managed and solved in time.“Maybe 2017 will be the year in which formal end-game de-risking strategies are at last embraced by the majority of pension schemes.”Meanwhile, Mercer’s data on FTSE 350 company pension schemes reported that their combined deficit increased threefold during 2016, from £39bn to £137bn.Alan Baker, UK DB risk leader, said: “This continues to put real pressure on any risk-management plans and will require trustees and corporate sponsors to work closely together to establish the right framework to monitor and manage those risks.”Last month, a committee of politicians published a wide-ranging report proposing DB sector reforms and calling for new powers for the Pensions Regulator (TPR), including a “nuclear deterrent” ability to fine companies for failing to manage pension deficits.However, the headline-grabbing proposal is unlikely to be used even if it is included in a forthcoming government reform paper, according to Faith Dickson, a partner and pensions lawyer at Sackers.“Giving TPR the power to levy punitive fines on employers to ensure they support struggling schemes might sound impressive, but it is unlikely these powers would be used in practice,” Dickson said.“If they were, the most likely outcome is further delays while employers challenge the fines.”In addition, Dickson warned that placing limits on the length of deficit-recovery plans could force some pension funds to adopt “an overly aggressive approach” to investment.Dickson supported the Work and Pensions Committee’s proposal to increase the use of regulated apportionment arrangements, which have been used on rare occasions to secure benefits while removing some responsibilities from sponsoring employers, all without resorting to the Pension Protection Fund (PPF).“We need to move away from thinking these changes are taking benefits away from members,” she said. “In reality, they can make businesses sustainable and open the door to schemes delivering benefits to members over the long term, when they might otherwise only have PPF compensation.”Elsewhere, the Pensions and Lifetime Savings Association (PLSA) has urged the government not to increase the state pension age any further.Responding to a consultation about the future of the taxpayer-funded state pension, the PLSA said an increase above age 68 – which will be the national retirement age from 2046 – would place those with lower life expectancies at a disadvantage.Graham Vidler, director of external affairs at the PLSA, said the state pension age should not be changed any more than currently planned.He also argued that benefits should be linked to inflation.“Proposals for a variable pension age, while attractive in tackling socio-economic differences, would sacrifice the simplicity and clarity of the current system,” he said.“On balance, we support the current system of a single state pension age for all.”last_img read more

UK pension lifeboat fund to support Mothercare’s voluntary restructuring

first_imgThe Pension Protection Fund (PPF), the UK’s pension lifeboat fund, has taken temporary control of high street retailer Mothercare’s defined benefit pension schemes in an effort to support a restructuring plan and avoid the company collapsing.The PPF has said it would vote in favour of the restructuring plans on behalf of the company’s pension fund members.Mothercare, which retails to parents of babies and young children, has proposed refinancing its business through a company voluntary arrangement (CVA), which would see it close 50 stores across the UK and agree rent reductions on a further 21.Under the terms of the CVA, the PPF has assumed the rights of the trustees of the company’s pension funds, including voting rights. Mothercare’s pension deficit stood at approximately £140m (€160.4m) on a PPF funding basis, although in its preliminary full-year results the shortfall was reported as £37.7m. The two schemes had combined assets of £351.5m at the end of March, the company reported.Malcolm Weir, director of restructuring and insolvency at the PPF, said he welcomed Mothercare’s willingness to “listen and take on board our view that the CVA proposals should not be to the detriment of the pension schemes”.He added: “Having received additional suitable assurances about the position of the pension schemes, we are able to support the CVA proposals as announced [yesterday]. “Our expectation is that the company will continue to take full responsibility for the pension schemes going forward.” The PPF reached a similar agreement with another struggling retailer, Toys R Us, in December last year. However, the company failed to find a buyer and was declared insolvent at the end of February.Mothercare has faced the twin pressures of rising rents and increased online shopping that have seen many UK competitors – such as Woolworths, Toys R Us and Phones 4u – disappear from the UK’s high street in recent years. Clive Whiley, interim executive chairman of Mothercare, said it was clear the group needed an “appropriate resolution”.“The recent financial performance of the business, impacted in particular by a large number of legacy loss-making stores within the UK estate, has resulted in an unsustainable situation for the Mothercare brand,” he said. “These comprehensive measures provide a renewed and stable financial structure for the business and will drive a step change in Mothercare’s transformation.”Industry experts said the economic pressures on high street retailers remained “intense”.Mothercare was “yet another example of a well-loved brand in the retail sector whose sponsor covenant has been unable to withstand the intense economic pressures on the high street”, said Richard Farr, managing director at Lincoln Pensions, the financial consultants.However, he emphasised that the pension scheme’s trustees had to ensure the best deal for their members.“The covenant risks in the retail sector have been building over recent years,” he said, “and while it is good to see that traditional restructuring techniques are now being applied to rescue groups such as Mothercare, trustees need to independently challenge and scrutinise their sponsors’ plans on a regular basis to ensure they continue to protect their members’ benefits as other creditors are being compromised.”Mothercare is set to present its plans to creditors in the next few weeks. If its proposals are accepted, the company will reassume oversight of its pension schemes from the PPF.last_img read more