The Pensions Regulator (“tPR“) has issued strong instructions to company directors that they must support trustees in a company merger or acquisition scenario where a risk to pension savers may arise. The directors can show support by the implementation of a robust funding plan, underpinned by cash and/or tangible security with proven sustainable value, which ensures members’ benefits will be paid in full, on time and when contractually due. In practice this generally means that the employer agrees to secure the pension entitlements of the members by committing to pay a certain amount of money on a regular basis over an agreed period of time. Employers should be mindful of tPR’s moral hazard powers (as detailed in our previous briefing), criminal and civil sanctioning powers and the notifiable events regime (as to soon be expanded) in strengthening its power to protect and aid pension schemes.
In a recent blog published by Mike Birch, Director of Supervision at tPR, the tPR’s expectations of defined benefit (“DB“) scheme sponsors were laid out. While this is not a new concept, it strongly signals tPR’s intention to assist trustees and its commitment and determination to protect pension savers’ interests. The blog is heavily focused on the potential challenges of the current economic outlook and although it reinforces that “the trustees are the first line of defence in ensuring pension scheme members are fairly treated in major corporate transactions”, it strongly imposes guidelines and expectations on both employers connected with a DB scheme and potential bidders for the company.
The blog notes the expectation of tPR that its best practice guidelines should be followed and that employers:
- should immediately alert trustees about a proposed corporate transaction and that the duties of confidentiality means market sensitivity or regulatory notifications are no excuse for a delay in providing the information;
- be aware that pension schemes are often significant long-term stakeholders and creditors and must be treated appropriately;
- grant trustees direct and early access to bidders and their advisers at the earliest opportunity;
- reach a legally binding agreement with trustees ahead of completion so that strong governance protections ensure trustee board independence; and
- ensure that bidders consider and provide for the DB scheme’s long-term funding objective with suitable protections for the DB scheme’s members forming a strong part of its considerations.
TPR further states that it will, where appropriate, make use of its range of powers to assist trustees in securing DB scheme members’ savings. It is clear from the blog’s final statement that tPR considers bidders, employers and trustees to play an equal part in securing the best outcome for DB schemes and their members.
If you wish to learn more about how to protect pension scheme members’ interests in an M&A scenario, please feel free to get in touch with Eleanor Hart at email@example.com or your usual Reward Team contact.