Real estate, intellectual property and copyright are tipped as 2010's choice of plugs for ten per cent of FTSE 100 pension deficits, says PricewaterhouseCoopers LLP (PwC), adviser to a number of companies and trustees in this area.

The assurance, tax and advisory services provider estimates that non-cash assets will play their part for these schemes, and believes that the combined deficit of those companies actively looking at non-cash funding could reduce by £10bn - around ten per cent of the £100bn combined FTSE pensions funding deficit.

Under these non-cash arrangements, assets are either paid directly into the pension scheme or used as security payable should default or insolvency occur. The enhanced security that is provided to trustees allows them to reduce or defer demands for cash contributions from the sponsor.

Brian Peters, partner and head of non-cash pension funding at PwC, said: "By using non-cash assets like real estate, intellectual property or copyright to fund its pension scheme, a company can meet trustees' requests for better scheme security without diverting additional cash from the business. This is particularly welcome at a time when deficits are volatile and borrowing is costly. We expect about ten per cent, or £10bn, of the current FTSE 100 pension deficits to have been funded in this way before the end of the year."

Peters said property that belongs to the sponsoring company has previously been used as contingent pension assets, often as a promise to the pension scheme should the company go bust. "But the increase in use to fund deficits has been driven by the recognition that this is a cheaper source of finance than cash, especially at a time when selling property is likely to be loss-making."

He added: "By clearly articulating the additional security that non-cash funding can provide to a pension scheme while allowing the sponsoring business to use its cash to maintain its strength, companies are helping trustees accept the benefits of these types of arrangement."
These arrangements also help to protect the Pension Protection Fund (PPF) should a sponsor become insolvent, Peters said.

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