Article – BusinessDesk
Tuesday 31 May 2016 04:42 PM
Fonterra winds up $109M staff pension scheme inherited from NZ Dairy Board
By Paul McBeth
May 31 (BusinessDesk) – Fonterra Cooperative Group, which is on a cost-cutting drive in the face of weak global prices, has wound up a $109 million staff pension scheme inherited from the New Zealand Dairy Board as part of the amalgamation that created the world’s biggest dairy exporter in 2001.
Fonterra closed the Fonterra Superannuation Scheme in December in favour of KiwiSaver for its workers, which the Auckland-based cooperative said was a lower-cost option. The majority of members have since been paid out 85 percent of what they were owed as at Dec. 31, with the balance due after an actuarial assessment is completed, according to the scheme’s financial statements lodged with the Companies Office. Fonterra said the scheme had been losing members, although it declined to give details.
Fonterra and its related entities contributed just $3.3 million to the scheme in the year ended June 30, 2015, compared to the $3.7 million put in by its members, who have made bigger contributions to the fund than participating employers since 2012. Employers in the scheme include Fonterra, its subsidiaries New Zealand Butter Canner and RD1, its joint ventures DMV-Fonterra Excipients and Kotahi Logistics, industry group DairyNZ, and Livestock Improvement Corp.
The scheme’s employer contributions amounted to just 4.5 percent of Fonterra’s $74 million expense for pension contributions in the 2015 year, compared to 8.3 percent in 2010 when Fonterra’s pension bill was just $42 million.
“Fonterra wound up the Fonterra Superannuation Scheme in December 2015 in favour of KiwiSaver as the primary superannuation option for its salaried employees,” a Fonterra spokeswoman said in an emailed statement. “The continuing decline of scheme membership, the scheme’s cost competitiveness for members, and the additional cost and other implications arising from Financial Markets Conduct Act compliance in the coming year were factors in the decision.”
The dairy exporter has been on a drive to cut costs, laying off 835 people last year as part of a broader restructuring to cope with the slump in global dairy prices while using its own balance sheet to provide low and no-interest loans to its hard-pressed farmer shareholders.
The pension scheme’s investment expenses rose to $567,000, or 5.5 percent of investment income, from $495,000, or 3.7 percent of income, a year earlier. Other annual expenses fell to $385,000 in the 2015 year from $437,000 a year earlier, most of which came from cheaper administration fees and legal expenses. Levies to the Financial Markets Authority were little changed at $40,800.
Before taxes and expenses, the fund generated investment returns of 13.3 percent in 2014, 14.4 percent in 2013, 3 percent in 2012, 12.3 percent in 2011 and 12.7 percent in 2010. Its return objectives were for its conservative fund to generate annual returns after tax and fees of 1 percent over a rolling five-year average, while its balanced portfolio aimed for 2.5 percent over a 10-year average and its growth fund 3.5 percent over a 15-year time. Its cash fund was expected to generate similar returns to 90-day bank bills.
In the six months ended Dec. 31, about $17 million was paid out to members, of which $9 million was withdrawals and $4.6 million was for retirement. Its annual withdrawals ranged between $3.5 million and $4.6 million from 2010 to 2015. The scheme paid $2.8 million for redundancy benefits in the final six months, more than the $550,000 in the 2015 year and $824,000 paid in 2014.
Since the wind-up, the majority of members were paid out the bulk of their outstanding benefits in January, February and March of this year, although some were still awaiting payment, pending an actuary calculation, the statements say.