Sections

The Pensions Regulator

Regulatory guidance

Regulatory guidance

AbandonmentAbandonment of defined benefit pension schemes

Potential gain by parties to the deal other than the pension scheme

  1. It is important for trustees to review the potential gain to all parties involved in the arrangement and to ensure that any mitigation is commensurate with the loss in covenant. That is, trustees should look to achieve a fair deal for the scheme if there is a potential upside to other parties in any proposed arrangement.
  2. The main parties to the deal other than the scheme are expected to be the current employer, the owners of the new employer group that the pension scheme is to be supported by, and the creditors of the existing and possibly new employer group. These parties will in all likelihood be looking to gain commercially from the arrangement.
  3. Information on the potential gain to the current employer may already be obtained through analysis of the employer covenant and its business case for carrying out the arrangement. Trustees, however, should expect the employer to clearly set out its case for the proposed arrangement. As discussed in the section on possible alternatives to the proposed arrangement, trustees should consider other options open to the scheme and these should be viewed in the context of whether these options can also meet the employer’s needs.
  4. Trustees should make every effort to understand the potential gain to ultimate owners of the new employer group by which the pension scheme will be supported. Ideally, trustees should obtain access to documents prepared by these parties setting out their costing and expected income and profits as a result of the arrangement.
  5. Trustees should also understand the potential gain to shareholders and other creditors of the current employer. Together with this, trustees should determine the priority of the pension scheme relative to the current employer’s other creditors.
  6. The aim of carrying out such assessments is to help trustees assess whether the arrangement results in a fair deal for the pension scheme and is in the best interests of its members.