Premier Foods, St. Albans, England, is merging three pension funds in an effort to reduce its group deficit.
The food producer's Premier Foods Pension Scheme and the Premier Grocery Products Pension Scheme run a combined deficit of about £500 million ($624 million). The two pension funds are set to be consolidated into the RHM Pension Scheme by the end of June, the firm said in an update, Monday. Premier Foods bought rival RHM in 2006.
The move will reduce pension deficit contributions for the group to between £175 million and £185 million following the merger, from £320 million. Starting in 2023, contributions will be further lowered by at least £30 million annually when the surplus assets from RHM Pension Scheme will be transferred to the other two plans, the update said.
RHM's assets were £4.9 billion as of Sept. 30. The RHM plan had a £1.07 billion surplus as of the same date, according to a half-year update published in November.
Premier Foods — which also sponsors a defined contribution plan, the Premier Foods DC Group Personal Pension — has total retirement assets across three retirement plans of £5.6 billion as of Sept. 30. Individual assets were not available.
"With a buyout of the RHM scheme getting progressively closer, any resulting surplus would be transferred to the remaining schemes and therefore result in significantly reduced pension deficit cash contributions by the company in future years," Colin Day, chairman of Premier Foods, said in a news release accompanying the update.
"The agreement we have reached follows extensive and highly collaborative discussions with all connected stakeholders, and marks a positive conclusion to the company's strategic review," he said.
Michael Chatterton, managing director at independent trustee firm Law Debenture Corp., and the trustee chairman of the Premier Foods Pension Scheme, said in a telephone interview that the firm will consolidate the plans with an objective to reach a buyout funding level.
Mr. Chatterton anticipates that following the merger, the plans will no longer need three sets of advisers and money managers. As assets and liabilities will be gradually merged into the RHM Pension Scheme, the fund's trustees will determine the investment allocation and strategy.
Some managers running illiquid allocations on behalf of the Premier Foods Pension Scheme will be retained, Mr. Chatterton said. But managers of the LDI portfolio and the liquid parts of the portfolio will be terminated over time, he said.
The Premier Foods Pension Scheme invests 37% of its assets in diversified growth funds, 33% in liability-driven investments, 15% in private credit, 10% in multiasset credit and 5% in real estate.
