Pension trustee support

Compromise of pension debt

The employer was incurring trading losses and there was a deficit on the pension fund. The business was put up for sale and a purchaser was found. The sale would only proceed if the members of the pension scheme accepted reduced benefits thereby eliminating the deficiency. The extent of the reduction in benefits was the same as that which might arise if the employer had gone into liquidation.

We acted for the Trustees in evaluating the employer's proposals. Our assessment analysed the likely outcome for the pension fund under various scenarios and highlighted the risks associated with each. This enabled the Trustees to have a much clearer picture of the attractiveness of the proposal being offered and identified possible areas, for negotiating a better outcome.

Evaluation of employer covenant

The employer in this case was a Scottish subsidiary of a UK listed company. The pension fund was in substantial deficit and the immediate employer covenant was weak. The parent company offered to cover the shortfall by providing a guarantee from a substantial European associate.

We evaluated the uncertainty and risks associated with the parent company's offer and advised the Trustees against accepting it. The parent company accepted our arguments and the Trustees were able to obtain better security for the pension debt thereby protecting their members' interests.

Temporary reduction in level of contrubutions and extend period for making good shortfall

In this case the employer had reduced its operations considerably over recent years. The residual business was responsible for the pension debt owed to its substantial former employees but was struggling to make profits and to meet the demands of the scheme. Prospects for the business were improving and the directors believed that it would be in the interests of the scheme members and the current employees to implement a temporary reduction in the level of contributions and an extension in the period for making
good the shortfall in the scheme. The directors of the business were also trustees of the scheme and regulatory agreement would be required to implement the proposal if it was accepted by the Trustees.

Our work in this case required a detailed evaluation of the employer's financial position, order book, business model and resulting financial projections. In the event we were able to advise the Trustees as to the risks in not accepting the employer's proposals and on that basis they were able to support them.