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Deficit Financing

Deloitte can offer a series of solutions to help companies fund the deficit in their defined benefit pension scheme and manage their commitments to the pension fund on an ongoing basis. Since 2010, more than £5bn of pension schemes’ deficit has been funded using asset backed funding structures. Deloitte are established as clear market leaders in this field, having implemented over 20 PFP structures (65% of publically announced ABCs by value) for clients including John Lewis, J Sainsbury, Whitbread, ITV, Alliance Boots, TUI Travel PLC, Marks & Spencer and Centrica PLC). Our approach is to work closely with companies to identify the funding solution that fits most closely with their wider financial objectives. What we offer is bespoke and can range from a simple cash injection to the pension fund, to our Pension Funding Partnership (PFP) solution, that uses non-cash assets to finance pension contributions in line with HMRC's Asset Backed Contributions ("ABC") regulations.

We offer a range of other options, and identify the one which fits most closely with a company’s risk appetite, cash profile and overall business objectives. These options include:

  • Hedging strategies, swaps or use of derivatives to remove volatility;
  • Escrow arrangements;
  • Legal charges;
  • Use of guarantees;
  • Use of non-cash assets both ABCs and non-ABCs and;
  • Strategies to manage liabilities on an ongoing basis.

In each case we will help the company understand all the options available and analyse those against the company’s business objectives.

Learn more about Deloitte’s Pension Funding Partnership (PFP)

Groups that have non-cash assets could consider using these to facilitate pension scheme funding, reduce cash contribution requirements and provide trustees with improved security for members’ benefits.
Effectively, corporate assets are used to collateralise a partnership with the pension scheme, providing the scheme with a valuable investment. A range of assets can be used, including:

  • Property;
  • Trade receivables;
  • Intangibles (e.g. brands, trademarks) - subject to evidencing independent value and longevity;
  • Investments.

Overview of typical PFP structure

How could the PFP benefit you?

  • The PFP solution is highly cash efficient - it has an attractive cashflow profile compared to most other deficit funding solutions and can result in an upfront tax deduction;
  • The solution results in the immediate reduction in the deficit in the pension scheme;
  • The assets used to collateralise the partnership remain in day to day control of the corporate;
  • The PFP is attractive to trustees and can lead to enhanced cooperation with the corporate;
  • The solution leads to reduction in levies payable to the Pension Protection Fund;
  • There are a range of accounting outcomes, depending on the precise arrangements. If desired, there can be no negative impact on the balance sheet or income statement in the company’s consolidated accounts;
  • The solution has the potential to help manage the risk of future overfunding of the schemes.
  • The PFP is flexible and fully compliant with HMRC's ABC rules.

What other benefits can the PFP bring?

  • As leverage to change benefit entitlements;
  • As a catalyst to merging multiple pension schemes;
  • As part of a move to pooled arrangements;
  • To optimise value derived from group assets.

Key contact

  • Feargus Mitchell
    Partner
    +44 20 7007 3698
  • Gavin Bullock
    Partner
    +44 20 7007 0663
  • Chris Coulston
    Director
    +44 20 7007 2117
  • Karen Parker
    Director
    +44 20 7303 4626
  • Katherine Worraker
    Senior Manager
    +44 20 7303 0939

Useful links

  • Meet the team
  • Submit a request for proposal
  • Contact us
  • Careers
  • Return to Pensions Advisory homepage
  • Return to Actuarial & Pensions homepage

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