Executives of Dairy Crest Group, Esher, England, are considering closing the £513 million ($848 million) defined benefit scheme to new accruals after an announcement today that the fund had purchased a group annuity from Legal & General to back up £160 million in pension liabilities, said Alastair Murray, Dairy Crest group finance director.
The move follows a transaction in late 2008 in which about £150 million of the funds pension liabilities were insured with Legal & General. Both pension buy-in tranches cover pension liabilities for all employees who retired before August 2008, according to Mr. Murray. Company officials also decided to contribute £20 million annually starting October 2009 to help fill a deficit estimated at £63.3 million as of March 31.
A press release from Mercer, which advised on the transaction, noted that the deal affected the funds remaining deferred liabilities. Mercer officials worked to ensure that long-term inflation protection was put in place for those obligations, said Kevin McLaughlin, principal in Mercers financial strategy group.
Mr. Murray declined to comment on which investment portfolios were reduced to fund the transaction and the managers running those strategies.
Mr. McLaughlin added: Now is a good time (to buy annuities) since falling credit spreads and rising inflation are expected in the next 12 months. Both factors will act to increase the cost of buying the annuities required in such transactions, he added.
In addition to Mercer, Aon Consulting and KPMG also advised.