A Pension Scheme Journey Comparison

Alternative Uses for Honda's £0.5 billion Pension Contribution

​The Honda Motor Europe pension scheme is being handed over to L&G, its LDI manager, for around £800m.  
Back in 2019 the Group decided to shut its Swindon plant and gave its £930 million pension scheme over £0.5 billion.  
Fiduciary manager Mercer spent £0.7 billion on LDI over 3 years.  Gilt yields were then around 1%.
In 2022 interest rates rose and £1.5 billion become £0.9 billion by March 2024.

The Aga Rangemaster pension scheme provides a rather helpful counterfactual case study.  
It was in a comparable funding position to the Honda scheme in 2018 and still is – it just did not need £0.5 billion in cash contributions to get there.  It continued steadily on.

Now if you had been given £0.5 billion in Swindon in 2019, what would you have done with it?

• Given it back?
• Left it in the car boot?
• Put it in the Post Office?
• Made Swindon Town a premier league team?
• Refurbished a car plant to make electric vehicles?

All better bets than Mercer’s on LDI.

In 2018 Aga Rangemaster (Aga) and Honda Motor Europe (Honda) had DB pension schemes with asset of £930 million and accounts deficits of around £200 million.

Honda donated £500 million to the scheme in 2019.  Honda’s fiduciary manager Mercer spent the money on LDI at the bottom of the interest rate cycle.  Aga kept to a run on plan.  

By 2024 Honda, after the £0.5 billion cash injection and having paid out £120m less that Aga to pensioners, the scheme should be much better off.

The Aga investment gain from 2018 to 2024 is £167 million; the Honda loss is £357 million.

Now Honda is giving the scheme to the LDI manager L&G in a buy-in for circa £800 million.

The conclusion should be actuarial work and the Pension Risk Transfer market needs scrutiny and disclosures now.