TUI Travel has finalised its funding and management plans for its defined benefit (DB) pension schemes.
The travel firm’s interim results stated that it had reached an agreement with trustees and unions to cap the rate of future growth of pensionable pay for its UK DB schemes to a maximum of 2.5% per annum.
The agreed measures will bring total cash savings to TUI Travel of £38 million per annum, including a £10 million reduction in annual service costs and net of royalty payments, and a reduction in forecast actuarial liability of £63 million.
On 31 May 2011, four of the current six schemes will merge, and the three remaining schemes have been provided with a limited interest in a partnership established by TUI Travel, which holds the Thomson and First Choice brands.
Under the arrangement, the organisation is committing to making payments of up to £275 million in 2026, if and to the extent that the pension schemes remain in deficit at that time.
The partnership, which will receive royalty payments from TUI UK for brand use, will also make annual income distributions to the pension schemes totaling approximately £16.5 million for 15 years until 2026.
The partnership’s interest in the Thomson and First Choice brands will provide collateral for these payments. All revenues, profits and cash flows from the First Choice and Thomson businesses will continue to be consolidated in the organisation’s accounts and TUI Travel will retain day-to-day operational control of the brands.
Peter Long, chief executive at TUI Travel, said: “We are delighted that we have reached agreement with the trustees of our UK defined pension schemes.
“This is a mutually acceptable solution and an innovative scheme which mitigates the group’s pension risk while increasing security for members’ pensions.”
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