The Work and Pensions Committee today publishes responses from GKN
and Melrose detailing their respective financing plans for the GKN
pensions schemes. The Committee is releasing these letters given
the considerable public and parliamentary interest in these
proposed deals.
GKN and Dana
As part of GKN’s proposed sale of its Driveline automotive
division to US firm Dana, GKN and Dana have agreed the following
terms with the GKN pension trustees for the ongoing funding of
the schemes:
- A new Dana pension scheme would assume responsibility for 16%
of GKN schemes’ UK liabilities (£533m out of £3.3bn), covered by
assets of £402m – resulting in a starting deficit of £124m and a
funding ratio of 77%. Dana has agreed to pay £124m cash to pay
down the starting UK deficit and the top holding company will
additionally guarantee to cover scheme liabilities up to a cap of
£174m. Dana will also assume responsibility of non-UK pension
liabilities of £804m (starting deficit: £656m). The number of
scheme members who would transfer to Dana under this arrangement
is still to be finalised.
- The remaining GKN schemes would receive £625m cash from GKN,
which after the proposed sale of Driveline would be an
aerospace-focused business. Of the £625m, an expected £270m will
be upfront cash to replace a pre-existing funding stream, and
part of the remainder would be used to finance the member
transfer process (including the offer of enhanced transfer values
to members).
GKN states that the total £769m cash package (£124m from Dana and
£625 from GKN) will suffice to eliminate the IAS19 deficit of the
UK schemes.
Melrose
Melrose is offering a cash package “likely” to amount to around
£1 billion within 5 years of their ownership, comprising
£150 million in the first 12 months, annual contributions of £60m
(up from £30m currently) and the remainder to come from “an
agreed amount of the gross proceeds from sales of existing
Melrose companies and GKN divisions.”
In the event that Melrose maintains its ownership for longer than
five years, its states that it will “continue to fulfil GKN’s
promise to its pensioners.”
Melrose states that they are “in constructive discussions with
GKN’s pension trustees about this offer”.
Rt Hon MP, Chair of the Committee,
said: “We are grateful to both companies for providing this
information to the Committee in response to our request. In turn,
we are releasing it given the considerable public and
parliamentary interest in these proposed deals. First of all the
GKN scheme members have a direct need to know what the outcome of
this takeover battle will mean for their pensions. There is also
a broader public interest in understanding how the interests of
pension scheme members are reflected in major corporate deals
such as these.”
Note to editors:
1. GKN sponsors two defined benefit pension schemes in the UK,
the 2012 scheme and the smaller 2016 scheme. The combined
liabilities of the two schemes are variously estimated at £3.3bn
on an IAS19 accounting basis (deficit: £675m), £4.0bn on a “gilts
flat” basis (deficit: £1.4bn) and £4.9bn on a section 75 (buyout)
basis (deficit: £2.2bn).
2. Membership of the Schemes totals 32,337 as of 5 April 2017.
This includes 5,105 active employees, 9,899 deferred members and
17,333 pensioners.
3. Melrose published its final offer for GKN on 19 March 2018.
The deadline for acceptances is 1.00 p.m. on Thursday, 29 March
2018.
