International accountant and shipping adviser Moore Stephens warned that the latest valuation relating to the post-1978 (new) section of the Merchant Navy Officers Pension Fund (MNOPF) will place further financial strain on shipping companies involved in the scheme.
Under the valuation, the MNOPF trustees reported a funding shortfall as at March 31, 2012 of £492 million. Although this is less than had been anticipated, it nevertheless represents an increase of £152 million (discounted to £120 million) on the deficit recorded in the March 31, 2009 valuation.
To eliminate the funding shortfall, the trustees have called for additional contributions with a present value of £120 million as at March 31, 2012 under a recovery plan beginning from September 30, 2013 and ending on September 30, 2025. There is a payment by installment option, but companies with a deficit of more than £250,000 will have to submit to a new credit assessment in order to qualify for this.
Employers’ contributions for existing members are also increasing, from 15.5% to 20%, while active member contributions are going up from 9.5% to 12.2%.
Michael Simms, a partner with the shipping group at Moore Stephens, said, “These changes will come as a further body-blow to companies which have been under severe financial pressure for the past five years due to the global financial downturn and the combination of declining freight rates, increased competition and higher operating costs in the shipping industry. In addition to the principal sums required, companies will also have to factor in the cost of their accounting requirements and assess the impact on loan covenants and other banking arrangements. For those opting to pay by installments, meanwhile, there is the additional cost of undergoing a new credit assessment, which is not insignificant. For shipowners already struggling to keep their heads above water, these increased pension costs represent an unwelcome, if not entirely unexpected, additional financial burden.”