Issue brief 9
the Pension Deficit epidemic
As reported the Pension Regulator says it has “substantial concerns about the plan” following BT’s announced intention about how it will pay off its £9bn pension deficit.
"ITV cuts pension deficit £124m... an asset backing scheme makes rapid inroads into broadcaster’s £550m pension deficit, which was seen as a takeover barrier”.
“GKN has unveiled a radical £400m plan to reduce its mounting pension deficit in the UK”.
“Cadbury pension deficit leaves a bitter taste for Kraft”.
Hardly a day passes without similar stories. The Pension’s Regulator has significant and close interest in positive steps to address pension deficits through scheme funding and pension funding partnership schemes.
rationale for Intellectual Property in the context of alternative financing and pension solutions
Despite the FTSE 350 running a combined pension deficit of about £80bn companies are concerned about committing cash contributions to their pension funds, even if they can afford to do it.
The credit crunch and recession has led to cash and credit restrictions for a large number of companies. Companies are reviewing balance sheets and trying to utilise assets for pension funding purposes that are undervalued or missing. Accounting is biased against intellectual property on corporate balance sheets.
As intellectual property is increasingly acknowledged as the dominant asset of most companies, it also becomes the primary collateral. Historically IP has rarely been used to maximum effect. IP is property just like any other asset but with more advantages, for example tax benefits following effective structuring. Commercial strategies with intellectual property have been commonplace in the area of off-shoring and IP management holding company structures.
comment
Whilst the market for alternative financing solutions for pension deficits is becoming more standardised with parent company guarantee, more specialised and innovative approaches are emerging. One particular and welcome development is the use of intellectual property to provide security to pension schemes. Trustees are increasingly willing to take patents, brands and trademarks as security against pension liabilities, thus reducing the cash contribution requirement and potentially improving overall balance sheet value.