Cheesemaker avoids getting in a pickle over pensions
Cheese and butter producer Dairy Crest, which has several major operations in the West Midlands, has restructured its pension fund arrangements to try and ease its deficit woes.
The company, which has its national distribution centre in Nuneaton, has switched the indexation of the fund from the Retail Price Index (RPI) to the Consumer Price Index (CPI).
The company, behind brands like Cathedral City and Country Life, said: “CPI is generally lower than RPI and therefore changing to CPI reduces the estimate of future benefit costs.”
The move was welcomed by investors, with the group’s shares rising in Friday trading.
The value of this future reduction in costs is estimated to be £75m on an actuarial basis. On an accounting basis, the estimated benefit is approximately £125m and this will be reported as an exceptional gain in the group’s preliminary results for the full year ending March 31, 2018.
In March 2013, Dairy Crest revealed that the fund’s actuarial valuation was £145m in deficit. In the three years to the March 2016 falling gilt yields increased the fund liabilities by more than £200m, which more than offset the improved asset performance.
However, following a fresh agreement with its trustee, the March 2016 valuation has been agreed at a reduced deficit of £100m, which Dairy Crest is looking to address in its ongoing recovery plan.
In a statement to the markets, Dairy Crest said: “The March 2016 deficit reflects an agreed change to the indexation of pensions in payment. Following detailed negotiations with the trustee, in future annual increases will be linked to CPI rather than RPI.”
The CPI is already used by the fund for increases in deferred pensions and is becoming more widely used across the UK to calculate increases in public sector pensions.
The recovery plan aims to put the fund on a stronger foundation. It is due to complete in March 2022.
“This package includes continuing to move to lower-risk investments over time,” added the company.
“Alongside the March 2016 actuarial valuation, we have also agreed a revised schedule of cash contributions. The new schedule provides for contributions of £10m in 2017/18 and £15m in 2018/19; a reduction of £12m over two years compared to contributions payable under the previous schedule of contributions.”
After 2018/19, deficit reduction contributions will revert to £20m per annum until March 2022. These contributions, along with the gradual de-risking aims to ensure that by this date, the fund is self-funding.
The fund will undergo another review in March 2019 following which a new contribution schedule will be agreed.
Dairy Crest, whose research and development facility is based at Harper Adams University in Shropshire, expects to issue a trading update for the six months to September 30 on September 18.
