Costain Pension Scheme
23 February 2012
Costain, one of the UK’s leading engineering solutions providers, today announces further actions taken to manage the obligations in the legacy Costain Pension Scheme (the ‘CPS’).
The Board has agreed with the Trustee of the CPS to transfer the Group’s interest in a portfolio of two PFI investments into the CPS, at an agreed valuation of £20.3 million. This represents an effective discount rate of circa 7%. As a result of the transaction, the accounting profit realised on the transfer of the assets is £10.2 million in 2012.
Furthermore, as part of the package of measures being implemented, the Group has instigated a liability risk management exercise. The Group is in the process of issuing Enhanced Transfer Value and Pension Increase Exchange offers to the members of the CPS. These initiatives, which potentially include every member of the CPS, will offer each individual greater choice and flexibility regarding their pension entitlement, and will also reduce the overall pension liabilities and risk remaining within the scheme. The level of liability reduction will depend on the take-up of the offer by members and financial conditions at the point the entire exercise completes (expected to be May 2012). At this stage, it is estimated that the initiatives could reduce the scheme liabilities by approximately £50 million, and could incur a one-off accounting cost, estimated at £6 million, to be expensed in 2012.
Together, the above actions are estimated to reduce the pension deficit by approximately £16 million, with an associated potential reduction in annual deficit contributions, following the next triennial actuarial valuation of the CPS which is due as at 31 March 2013.
1. The two PFI assets transferred into the CPS are:
Integrated Bradford Holdco Two Limited
Lewisham Schools For The Future Holdings 2 Limited
2. The gross asset value as at 30 June 2011 of the two PFI investments transferred was £7.5 million (31 December 2010: Nil) after the IAS 39 mark-to-market swap adjustment and £8.9 million (31 December 2010: £0.2 million) excluding this adjustment.
The profits attributable to the two PFI assets for the six months to 30 June 2011 were £0.2 million (for the twelve months to 31 December 2010: £0.1 million).
3. The IAS19 gross deficit in the CPS as at 30th June 2011 was £35.8 million.