Trustees, Company and Advisors Still Spinning

There is no grip and no Michelin stars in the UK pension scheme’s track record.  A sad, lame deal announced this month sees Aviva given £1.5 billion to drive off with it and a sister scheme.  The plot line is:

• Michelin Tyre was for 60 years a major UK employer and had a strong pension scheme.
• £0.5 billion was put into the scheme between 2015 and 2020 and it now has assets of £1.2 billion
• In 2015 Michelin Tyre employed over 2300 in the UK. It now employs 700 after Ballymena and Dundee were closed in 2018 and 2020.
• 60+ jobs from Stoke are currently going to Poland.

Michelin Tyre accounts say the company is pleased to care for communities even after it has closed sites.  Pensioners seem to have been a carve out from such ESG alignments.  The opportunity was missed to run-on, invest more in communities and allocate surpluses to past and present employees.  XPS and LCP are key advisors and they talk a good game on run-on.  New Government regulations require them to compare bulk transfer with run-on.  What their recommendation was in the Michelin case is not known.

Members are told they do not need to do anything, but they should reasonably ask:

• If £0.5 billion given to the pension scheme since 2015 had been used for capital investment would the factories still be open?
• If all that money had been kept in escrow or a high street bank savings account, would the scheme be worth nearly £200 million more?
• Why did the trustees bet £1 billion on bonds between 2016 and 2021 to lose a third of it compared with simply sticking with the 2016 asset allocation? Was that just a straight mistake?
• If the “get rid ASAP” Statement of Investment Principles had been long-termist, then surpluses could now be funding discretionary increases.
• Have Michelin contractually committed to stay as sponsor or is a buyout to follow – as per the LCP well-marketed approach? How much of the “risk” Aviva is taking and its immediate resulting gain is being passed onto the reinsurance world and is there reassurance that reinsurers have Solvency UK cover?
• Did the trustees and sponsor have hard numbers to back TAS300V2 calculations of the relative merits of bulk transfers and run-on? Did they still conclude from actuarial papers that run away was the best answer for members?

Members do nothing?  Perhaps that’s just one more mistake.

Pension Scheme Financials 2015 – 2023

Scheme balance / contributions	£m
2015 assets	1386.0
benefits paid to 2023	-882.1
Admin costs	-20.4
Balance	483.5
Add comp. contributions	484.8
Balance + contributions	968.3
2023 assets	1223.9
‘Lost’ contributions	229.1

 

Michelin Tyre : Company Data

December	2023	2022	2021	2020	2019	2018	2017	2016	2015
No. employees	743	740	670	858	1291	1734	2125	2265	2268
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Turnover	530.0	511.1	459.2	398.8	576.6	650.2	685.9	716.5	800.2
Profit Before Tax	15.8	7.8	22.1	-42.1	-25.0	-189.2	-5.0	2.8	-41.1