Sales and Acquisitions: Pensions

The Code Committee of the Takeover Panel has published its response statement setting out amendments to the Takeover Code following its consultation on extending certain rights of employee representatives to the trustees of offeree company pension schemes.

A guide to using our materials to help train new pensions lawyers.

The Pensions Ombudsman has given his determination in a complaint by Mrs G M McCurdy against Rathlin Island Ferry Ltd.

The Code Committee of the Takeover Panel has published PCP 2012/2: Pension scheme trustee issues.

The High Court has handed down judgment in Urenco UK Limited v Urenco UK Pension Trustee Company Limited and Others [2012] EWHC 1495.

An Ask the team article considering an employer's obligation to consult with employees on a corporate transaction under pensions legislation.

We have published a new article on the pensions issues in the BA and Iberia merger written by Alarna Carlsson-Sweeny of PLC.

The Department for Work and Pensions is consulting on draft regulations under section 39A of the Pensions Act 2004.

The National Association of Pension Funds (NAPF) has responded to the Pensions Regulator's consultation on its draft material detriment code of practice.

An update on the EAT's decision in UCATT v Amicus and others UKEATS/0007/08 and 0014/08.

The Pensions Institute has published a discussion paper considering methods of tackling longevity risk in pension schemes, including mortality-linked securities and derivatives.

The British Private Equity and Venture Capital Association (BVCA) has published a memorandum it has filed with the House of Commons Treasury Select Committee relating to its inquiry into the private equity industry. The memo rejects the contention that there are any specific implications for pension funds arising from private equity-funded takeovers, claiming that there is no distinction in law between these takeovers and those involving non-private equity funding. The BVCA notes that the Pensions Regulator's clearance guidance, the regulations requiring employers to consult with their employees before making changes to their scheme, and the takeover code disclosure requirements, apply equally to both types of transaction. See Memorandum to Treasury Select Committee's inquiry into private equity, BVCA, December 2007.

The Department for Work and Pensions is consulting on amendments to the legislation dealing with statutory debts from employers to their pension schemes.

On 30 July 2007 the House of Commons Treasury Committee (Committee) published an interim report on their inquiry into the private equity industry. The inquiry was undertaken in response to the growing significance of the private equity industry in the UK, and in particular the rising number of takeovers of very large companies by private equity firms (eg Alliance Boots). The inquiry concentrated on the highly leveraged sector, and particularly the larger private equity firms. The report looks at: (1) the private equity industry; (2) the advantages and disadvantages of the private equity and public limited company model; (3) the possible risks to financial stability posed by recent developments in private equity; (4) the issue of transparency as regards both private equity firms and the companies they take over; and (5) tax, including the taxation of "carried interest" (the entitlement of the private equity partners to a share of the profit above the hurdle rate when a fund matures and which is taxed as a capital gain) and the tax treatment of debt and equity.As the report is only interim the Committee say they have been cautious with their conclusions and recommendations, preferring to raise questions and highlight areas of concern to which they can return later in the year. For them the central issue is what impact the current activities of the private equity industry, particularly the larger players, are having on the UK economy as a whole. However the points the

The Government Actuary's Department (GAD) has updated its note on the pensions passport system for contractors that regularly tender for public private partnerships, or private finance initiative contracts. The note summarises the main points that GAD takes into account when considering applications by contractors for pensions passports. The passports are certificates in which GAD confirms that a particular contractor's pension arrangements are broadly comparable in value with those enjoyed by employees transferring from the public sector. The note was originally published in July 2002.

The Pensions Regulator has issued a reminder that the underlying principle for parties considering applying for clearance under the Pensions Act 2004 is whether the proposed transaction is financially detrimental to the pension scheme's ability to meet its liabilities. The Regulator states that if a corporate transaction results in a significant weakening of the employer's covenant, then a clearance application will probably be necessary, irrespective of the scheme's funding position. Additionally, trustees in this situation might want a "materially enhanced level of mitigation in excess of FRS 17/IAS 19". This reminder will be particularly relevant in private equity transactions, many of which are highly leveraged. The Regulator is in the course of updating its clearance guidance, to take account of its experience since the regime was introduced in April 2005. For more about applying for clearance, see Practice note, Pensions Regulator: clearance applications. (See Clearance reminder, Pensions Regulator, 3 May 2007.)

The High Court has held that an agreement to determine a debt due under section 75 of the Pensions Act 1995 does not result in exclusion of a pension scheme from the Pension Protection Fund, if it is made before that debt is triggered.

On 19 June 2006 the Pensions Regulator issued a reminder of the time it needs to process clearance applications. The regulator asks that organisations make early contact on potential clearance and withdrawal transactions (on a no names basis if necessary), and allow at least six weeks before deadlines; organisations that want clearance by the end of August should submit an application to the regulator as soon as possible and by the second week of July at the latest. The regulator notes that the nature of the transaction, the extent to which the interested parties are in agreement, the potential detriment to the pension scheme and the level of mitigation offered by the employer, among other things, may influence the time that the clearance process takes, which can range from days to a number of weeks, and that incomplete or inaccurate applications will cause delays in processing. For background, see PLC Legal updates, Pensions in corporate transactions: clearance statements, Pensions in corporate transactions: conditions on returns of capital - market practice analysis, Pensions in corporate transactions: Ericsson and Marconi, Swissport and Candover - market practice analysis, Pensions in corporate transactions: 'moral hazard' powers - market practice analysis and the articles there linked.

Two innovative new deals struck between companies and their pension scheme trustees with the help of the Pensions Regulator have shed light on the approach to pensions deficits in the context of M&A activity. The deal struck between Marconi and its pension scheme trustees has enabled Marconi to sell the bulk of its assets to Ericsson free of pensions liabilities for £1.2 billion. The arrangement includes an immediate cash injection to the Marconi scheme to cover the current Financial Reporting Standard 17 (FRS 17) pension deficit and security over an additional amount to secure funding on a more conservative basis. The deal struck between Candover, Swissport and the independent trustee of Swissport's Heathrow pension scheme has enabled Candover to sell Swissport to Ferrovial without the shadow of an ongoing deficit in the scheme. The arrangement includes an immediate cash injection to the scheme with members being given the choice as to whether to transfer their benefits to another employer final salary scheme, a private pension plan or the Pension Protection Fund.

As those bidding for Somerfield will know, agreeing with scheme trustees and the new Pensions Regulator how a scheme deficit is to be funded is now an important part of deal planning.

The Pensions Regulator has provided guidance on when clearance should be sought for events which may lead to the issue of contribution notices or financial support directions.

The debt owed by an insolvent employer where a scheme winds up or the employer ceases to participate in a multi-employer scheme increased to full buy-out level from 15 February 2004.

At present, where there is a transfer of a business subject to the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE), any employees engaged in the business will transfer with the business on their existing terms of employment. However any rights relating to occupational pensions are expressly excluded from TUPE. The Pensions Act 2004 (section 258) will require that, where is a TUPE transfer, the transferring employees will retain certain rights relating to occupational pensions. On 7 December 2004 the Department of Work and Pensions issued a consultation paper on the draft Transfer of Employment (Pension Protection) Regulations 2005. These regulations will, when implemented, specify the details of those pension rights to be provided to the transferring employees after the transfer.

The Pensions Bill will impose additional requirements on employers who cease to participate in a multi-employer scheme.

The High Court has held that there is a contractual duty on employers involved in a TUPE transfer to ensure that information which they give to employees is accurate.

The Pensions Ombudsman has rejected complaints about a merger of pension schemes connected with NFC plc and arrangements for dealing with surplus assets of those schemes.

The Court of Appeal has rejected the argument that the buyer of a business is obliged to provide comparable occupational pension rights for the future service of transferring employees.

The High Court has rejected the argument that a buyer of a business is obliged to provide comparable occupational pension rights for the future service of the transferring employees.

The application for judicial review of the Securities and Investments Board (SIB) guidelines on compensation for poor advice in relation to pension transfers has failed.

The Securities and Investments Board (SIB) has issued guidance on how insurance companies and brokers should assess the cases of customers who may have been wrongly advised to opt out of occupational pension schemes or transfer their benefits to personal pension schemes. The guidance also describes how such customers should be compensated, preferably by arranging for them to be reinstated in the occupational pension scheme.

The Employment Appeal Tribunal (EAT) has decided that Regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (transfer of terms of employment to a purchaser does not apply to terms relating to occupaional pension schemes) does comply with EC Directive 77/187. The EAT has therefore reversed the finding of an Industrial Tribunal that Directive 77/187 requires a purchaser to provide the transferring employees with the same pension arrangements as they had before the transfer.

An industrial tribunal has held that the exemption for occupational pension schemes in Regulation 7 of TUPE is not consistent with the Acquired Rights Directive under which the regulations were made. If this decision is upheld, it will mean that a purchaser has a duty to provide a pension scheme for employees in the business it is purchasing comparable with that provided for them by the vendor.

A member of a pension fund has successfully argued that the trustees' decision as to the calculation of a transfer payment was not properly taken in accordance with the rules of the fund.

Faced with the possibility of a takeover bid from Hanson, ICI has taken steps to protect its Pension Fund against "the possibility of maladministration".

A recent court decision shows the need for trustees to act strictly in accordance with the rules of the scheme. The plaintiff in the case is seeking to oblige the trustees to pay a transfer payment which is greater than that provided for in the sale agreement. The case illustrates the increasing tendency for pension disputes to end in litigation.