Fonterra ends staff pensions

Fonterra has closed its superannuation scheme for its workers in favour of KiwiSaver. Photo / NZME

Fonterra Co-operative 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 per cent of what they were owed as at December 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 per cent of Fonterra's $74 million expense for pension contributions in the 2015 year, compared to 8.3 per cent 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 per cent of investment income, from $495,000, or 3.7 per cent 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 per cent in 2014, 14.4 per cent in 2013, 3 per cent in 2012, 12.3 per cent in 2011 and 12.7 per cent in 2010. Its return objectives were for its conservative fund to generate annual returns after tax and fees of 1 per cent over a rolling five-year average, while its balanced portfolio aimed for 2.5 per cent over a 10-year average and its growth fund 3.5 per cent over a 15-year time.

Its cash fund was expected to generate similar returns to 90-day bank bills.

In the six months ended December 31, about $17 million was paid out to members.

- BusinessDesk