Pensions in corporate transactions

Overview

A pension scheme is more than an employee benefit. In the case of a defined benefit pension scheme, it is likely to constitute a significant corporate liability. Management of that corporate liability - transferring it, retaining it, pricing it, sharing it or even avoiding any acceleration of the financial obligations - requires technical knowledge, experience and thoughtful communication with trustees.

The impact of a transaction on a group’s defined benefit pension scheme needs to be considered at the planning stage in order to avoid pension issues becoming an obstacle to the corporate objective, and to avoid or manage any intervention by the Pensions Regulator. In particular, a transaction or restructuring could trigger section 75 debts on sponsoring employers or expose the wider group to the powers of the Pensions Regulator to impose financial support directions or contribution notices. Early consideration ought to be given to how any such “employer debts” and regulatory risks would be managed and whether the transaction itself would be made conditional on regulatory clearance being obtained.

The structure of the proposed transaction (whether a business transfer pursuant to TUPE or a share sale) will be relevant in assessing the pensions risks involved. Detailed due diligence should be carried out on corporate acquisitions where the target company either participates in or has historically participated in a defined benefit pension scheme and consideration will also need to be given to the Pensions Regulator’s powers.

The Macfarlanes pensions team has extensive experience of advising a wide range of corporate groups, investors, private equity houses and trustee boards on all types of UK and cross-border corporate transactions.

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