Private equity-backed companies less likely to go into Pension Protection Fund, says Close

The firm says its findings challenge suggestions that private equity firms have been responsible for driving a significant number of pension funds into the control of the PPF. Private equity-backed firms also account for a smaller share of those companies whose schemes are currently in PPF Assessment Period, accounting for just 23 per cent of the 175 companies with schemes in assessment.

Of the remaining companies with schemes in the PPF, 58 per cent are privately owned and 13 per cent are from publicly-listed companies. In the PPF Assessment Period the remaining companies are 62 per cent privately owned and 15 per cent publicly-listed companies.

‘This research dispels the unfair criticism private equity firms have received claiming they are responsible for a significant percentage of companies in the PPF,’ says Christopher Clayton, head of Close Brothers’ pensions advisory group. ‘Private equity is plainly not a major catalyst driving company pension schemes into the PPF.’

Historically 70 per cent of companies in the Assessment Period have gone into the PPF. Based only on the number of companies currently in the Assessment Period, a further 123 schemes are likely to join the fund, treble the number it currently covers. This will significantly increase the burden on the PPF, which in August estimated that the total deficit in UK pension schemes was GBP91.6bn.

Close Brothers’ research also reveals that financial services sector has no company schemes in the PPF and makes up only 3 per cent of companies with pension schemes in the Assessment Period.

However, the firm believes, turmoil in the sector will lead to a surge of financial services companies moving schemes into the PPF. The Lehman Brothers pension fund in Britain is reported to have a GBP100m shortfall and its trustees are said to have already been in contact with the fund.

Manufacturing company schemes make up the highest percentage of those in the PPF at 21 per cent, a figure that Close expects to increase further since manufacturing company schemes account for 29 per cent of schemes in Assessment, with a combined GBP1bn of scheme deficits. Support services company schemes account for 5 per cent of companies in the fund and 13 per cent of those in Assessment.

Although the food and consumer goods sector currently has no exposure to the PPF, it accounts for 9 per cent of schemes in Assessment, including Golden Wonder, which was private equity-backed when it went into administration with a GBP16m pension scheme deficit, and Grampian Country Foods, which went into Assessment with a GBP101m deficit.

Companies from the automotive sector, including car dealerships, account for 21 per cent of companies in the fund, the most high-profile being the MG Rover Group Pension Scheme. Although the research suggests that the sector’s share will diminish, with only 13 per cent of companies in the Assessment Period from the automotive sector, the outlook is not encouraging.

Recent research by JD Power, the car industry consultancy, suggests that European car sales this year will be the worst since 1997. Last year car dealership Wicliffe Motor Company went into administration and its pension scheme is currently in the Assessment Period.

‘Although the numbers of companies in the PPF and the Assessment Period do not appear large, these companies are relying on pension support from levies applied to other UK pension schemes, with the low volume of companies in the PPF reflective of the benign economy of the last 10 years,’ Clayton says.

‘With growing difficulties across the global economy, I expect the number of companies going into the PPF to grow significantly – quite possibly far more than this research so far demonstrates.’