GKN considers debt raise in order to manage £2bn pension shortfall

Engineering group GKN is preparing to go to debt markets to raise £200m in an attempt to placate the trustees of its pension scheme, according to reports.

The FTSE 100 group is in the middle of a three-yearly review of its pension scheme with 2016 accounting valuations revealing its deficit had swelled by £475m over the last 12 months to £2bn.

The move, which will see debt investors partially funding retirement incomes, could lead to the break-up of the company, City sources told The Sunday Times.

GKN is one of a number of firms facing pension headaches that threaten to absorb management time. And reports of a debt raise could prompt other firms to consider similar moves.

Telecoms giant BT is preparing to enter into negotiations over its triennial valuation, with the scheme facing a £10bn shortfall.

Meanwhile, another formerly publicly-owned firm, Royal Mail, is planning to shut its final salary scheme. Despite it currently being in surplus, Royal Mail has estimated by 2018 the scheme will cost it approximately £1bn each year to keep open.

In February, GKN said the annual cash cost of managing its pension scheme had jumped from £42m to £57m.

During the year GKN paid an additional £15m to offload £268m of pension liabilities to specialist aggregator the Pension Insurance Corporation.