United Kingdom

Details

  • Service: Tax
  • Type: Press release
  • Date: 28/05/2013

Asset-backed funding for pensions surges in past six months 


• KPMG’s asset-backed funding for pensions activity in six months ended March 2013 outstrips the entire market for the previous year, according to KPMG in the UK
• Uplift in volume and value of transactions likely to continue for the rest of the year, says KPMG


KPMG has identified a surge in the use of asset-backed funding (ABF) for pensions recently.  KPMG’s “Asset-backed funding – Market Update” finds that the value of ABF for pensions in the six months since the end September 2012 implemented by KPMG in the UK alone was £700m; more than the total of £600m seen in the market as a whole in the preceding year.

 

Asset-backed funding is where a sponsoring employer uses business assets to generate cash which is then paid to the pension scheme.  It is a form of funding which, according to the pensions team KPMG in the UK, is becoming increasingly common as businesses look for more innovative and efficient ways to support their pension liabilities.

 

As well as the value of ABF transactions in the last six months overtaking the whole of the previous year, the volume of such deals has also accelerated.  KPMG alone has implemented a total of ten such deals in the six months since the end of September 2012, compared to a market total of seven in the preceding year.

 

David Fripp, pensions partner at KPMG in the UK, said: “The market is having to adapt to the ‘new normal’ and look for new ways to plug gaps in pension funding.  Gilt yields are at record lows and companies and trustees are under increasing pressure to fund large pension deficits.  The security that an asset-backed funding structure offers enables the trustees to take a more flexible approach to funding their pension schemes, helping companies to invest in growth and remain profitable while at the same time reducing the risk of ‘trapped surplus’ when gilt yields rise at some point in the future.  This is consistent with the Pension Regulator’s recent statement encouraging trustees to agree long-term strategies with employers that protect the interests of retirement savers, whilst also enabling viable businesses to thrive and grow.”

 

According to KPMG’s Market Update, the range of assets used for ABF is widening, with intra-group loans

becoming increasingly popular. Additionally, the average size of ABF transaction is falling as the funding method becomes more mainstream and accessible, driven by falling implementation costs and HMRC providing certainty around their tax treatment.  KPMG found the average value of its ABF transactions in 2013 was £42m with over half the transactions for £50m or less, with the smallest just £12m.  This compares to a market average of £138m in 2010.

 

In KPMG’s view, the trend towards more ABF transactions is likely to continue over the rest of the year.  David Fripp concluded: “We fully expect to see the volume of ABF transactions increasing further for the remainder of 2013 and beyond both in terms of new planning and also an increasing number of companies ‘topping up’ existing structures as larger deficits emerge.”

 

-Ends-

 

For further information please contact:

 

Margot Cowhig, KPMG Corporate Communications

Tel:  0207 694 4246 Mobile: 07920 274856: margot.cowhig@kpmg.co.uk

KPMG Press Office: 0207 694 8773

 

Notes to editors:

 

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.

 

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Asset-Backed Funding (ABF) - Market Update