The £4.7bn (€5.7bn) Invensys Pension Scheme has seen its £445m deficit disappear after changes in the ownership structure at its sponsoring company.
The fund, which made an investment loss of 0.9% over the year to April, received a £400m cash injection last year after its sponsor, Invensys, sold its rail business to German conglomerate Siemens.
The fund now boasts a £121m surplus, according its latest annual report.
Earlier this year, Invensys itself was sold to Schneider Electric, which renegotiated the scheme’s covenant and an additional £105m injection after the dissolution of a £225m reservoir fund.
After the takeover, the trustees of the fund negotiated a guarantee from new sponsor Schneider Electric to cover liabilities of as much as £1.75bn, with the reservoir fund split between the two.
In the scheme’s annual report, chairman Kathleen O’Donavan said the guarantee meant the financial security of the fund was materially better than at any point in recent years.
“The trustee will continue to review the strength of the covenant the company provides,” she said.
“In light of the £1.75bn guarantee, the trustee will now also assess the improved security afforded to the scheme through the strength of the wider Schneider Electric group.”
The new sponsor will not grant the scheme any additional contributions other than those for active members.
This, however, will be reviewed in March next year.
Due to the cash injection and reservoir contribution, the fund’s value increased by £208m despite being cash-flow negative.
Two-thirds of the fund’s 78,000 members are pensioners, with only 385 active members.
Some 54% of assets is invested in BlackRock’s liability-driven investment (LDI) fund, which lost 4.9% over the year, outperforming its benchmark by 1.3 percentage points.
Through its BlackRock mandate and other investments, the pension fund holds 42% of its assets in index-linked UK Gilts and 17% in fixed-rate Gilts.
It holds 25% in corporate bonds, where managers AXA IM, M&G Investments and GLG all outperformed their respective benchmarks.
Its 3%, £131m passive allocation to equities held by Legal & General Investment Management produced a 15.2% return – nearly 11 percentage points above benchmark.
However, overall returns remained negative due to the impact of rising Gilt yields on LDI strategies, which account for the lion’s share of its holdings.
O’Donavan said the Invensys scheme still outperformed its benchmark by 2.5 percentage points.
“The strategic target took into account the impact of changing Gilt yields,” she said.
“The scheme’s strategic target was -3.4%.
“The fact the assets outperformed expectations over the year helped to improve the funding position of the scheme and the security of members’ benefits.”
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