1. Pensions Management Institute – Trustee Seminar 26 June 2013
Looking after Members’ Interests
PMI Trustee Seminar
America Square Conference Centre, London
1
Redington
13-15 Mallow Street
London EC1Y 8RD
T. 020 7250 3331
www.redington.co.uk
http://twitter.com/redingtontweets

2. Pensions Management Institute – Trustee Seminar 26 June 2013 2
Non-cash funding
Statement by The Pensions Regulator (November 2010)
The regulator’s view remains that – generally – the best form of
support for a scheme is direct and unconditional cash
contributions. However, there has been an increase in the use of
mechanisms that do not involve only direct and unconditional
cash payments from scheme employers to fund schemes. These
mechanisms can strengthen the employer covenant, or support
to the scheme, by providing the scheme with an enforceable
legal arrangement which reduces risks to members.

3. Pensions Management Institute – Trustee Seminar 26 June 2013 3
Contingent assets
• Guarantees
• Security
• Escrow
• Letters of Credit
Business assets
• Direct transfer
Asset-backed
• Priority of cash
flows
• Security over assets
Cash
Alternatives to cash

4. Pensions Management Institute – Trustee Seminar 26 June 2013
20122008200620042002
Sponsors fear trapped surplus
Smarter use of balance sheet
TPR/PPF brings
focus on
contingent
assets
Letters of credit
(National Grid)
Corporate
guarantee
Sponsor affordability
tested
Escrow
(Marconi) Banks
develop
products
LP/trust structures
(M&S,
Sainsbury’s,
Diageo)
Super-security
(KKR/Boots)
Leveraged
transactions
Accelerated cash
(Somerfield)
Business assets
(John Lewis, HSBC)
Market drivers
Popular solutions
4
Non-cash funding – a brief history
2010
2013 TPF funding
statement and
emphasis on flexibility
(?)

5. Pensions Management Institute – Trustee Seminar 26 June 2013
Case study: Non-cash contributions can result in smarter use of balance sheet
5
Simplified bank balance sheet Pension scheme balance sheet
Securities
Loans
Asset
contribution
Equity
Deposits and
other funding
Pension
deficit
Assets Liabilities
Investments
Asset
contribution
Pensioners
Deferreds
Actives
Assets Liabilities
Portfolio of assets is contributed to pension scheme. This
reduces both the asset and liability sides of the bank’s
balance sheet, while increasing pension assets and
reducing pension deficit.
Sponsor is regulated UK banking institution

6. Pensions Management Institute – Trustee Seminar 26 June 2013 6
 Reduces pension deficit and risk
 Reduces bank balance sheet leverage
and funding requirements
 Reduces capital consumption on assets
contributed (RWAs)
 Reduces capital charges for pensions
risk
 Improves bank liquidity position
 Improves P&L as reported under IAS19
by reducing interest on the deficit
Benefits to the bank sponsor
Benefits to the pension scheme
 Improves funding position of the
scheme
 Strengthens sponsor covenant
 Provides access to attractive assets,
often consistent with the liabilities
 Reduces risk of scheme
Challenges to overcome
 Valuation differences (eg, pension
scheme MTMs its investments whereas
bank may value an asset at accrual
plus impairments)
 Structure and complexity of the
exposure
 Ongoing portfolio management
requirements
 Operational and administrative
requirements
 Illiquidity considerations
 Due diligence requirements of pension
scheme
 “Headline” risk and managing the
message
Case study: benefits and challenges

7. Pensions Management Institute – Trustee Seminar 26 June 2013
13-15 Mallow Street London EC1Y 8RD Telephone : +44 (0) 20 7250 3331 www.redington.co.uk
Contacts
7
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