Dealing with pensions:

The practical impact of the Pensions Act 2004 on mergers, acquisitions and insolvencies

Authors: Robin Ellison (partner, Pinsent Masons) and Grant Jones (Solicitor and Chartered Accountant, Squire, Sanders and Dempsey )

Publication date: June 2006 Price: £95.00

ISBN: 1-904905-06-4

Format: Paperback, royal octavo, 496pp

Essential reading for trustees of pension schemes, company directors, managing directors, finance directors, company secretaries, actuaries, lawyers, accountants, insolvency practitioners.

The Pensions Act 2004 provides additional protection for members of defined benefit occupational pension schemes. In doing so it establishes both a pensions regulator and a pensions protection fund. The new rules impose funding obligations on employers which, it was thought by the legislators, employers would attempt to evade.

The legislation therefore includes anti-avoidance provisions, the knock-on effects of which will (1) radically change the way in which companies are bought, sold, restructured and wound-up (whether insolvent or solvent) and (2) create complex dilemmas for pension fund trustees and their advisers.

The anti-avoidance provisions of sections [35 and 39] are intended to protect pension members' benefits, whilst ensuring that it blocks abuses whereby pension liabilities can be offloaded onto the Pension Protection Fund. The provisions however may lead to unintended consequences for some businesses in the same group of companies, in situations where no abuse has taken place, for example:

	difficulties for private equity providers who thus far have viewed their investee companies as stand-alone entities which can be allowed to become insolvent if they fail. Following the legislation, where private equity provider invests in a company with a defined benefit which later falls into insolvency, clause 39 would require other companies invested in by the private equity provider paying towards the deficit that company’s scheme.
	difficulties for overseas investors who find it hard to quantify the pension liabilities of UK businesses they acquire, especially if the liabilities of one infect the liabilities of otherwise unconnected companies, including those without any defined benefit pension arrangements.
	difficulties for trustees who may be intimidated from assuming appointments as trustees, and/or increasing the cost of trusteeship
	difficulties for employers wishing to establish or continue defined benefit pension schemes

About the authors

Robin Ellison is a partner at Pinsent Masons, and Chairman of the National Association of Pensions Funds (NAPF). He is also a member of the CBI Pensions Panel, Vice Chairman of the NAPF Benefits Council, and was a founder of the Association of Pensions Lawyers. In 1997 he was elected the first solicitor Honorary Fellow of the Pensions Management Institute. He is the author of numerous books on pensions including a four volume loose-leaf Pensions Law and Practice, (Sweet & Maxwell) and Family Breakdown and Pensions (Butterworths 2001, 2nd ed) and is editor of Pensions Benefits Law Reports.

Grant Jones of Squire, Sanders and Dempsey, Solicitors, is a Chartered Accountant, Licensed Insolvency Practitioner & Solicitor. Prior to practicing as a Solicitor, Grant took numerous appointments under the Insolvency Act 1986, developing a specialism in pension related insolvencies. Grant sits on the steering education committee of the UK insolvency body (R3) and on the disciplinary committee of the Association of Chartered Certified Accountants, specialising in insolvency and financial services complaints. A regular speaker, Grant has co-authored 'The Insolvency Volumes: a Multimedia Guide' (IPS freeware).

From the Preface

The changes introduced primarily by the Pensions Act 2004 in relation to the protection of defined benefit pension schemes have now been seen to have had an impact on day-to-day commercial and corporate activity which was not widely foreseen at the time.

Anyone thinking of buying, selling a business or company, or involved with any corporate reconstruction, is now aware that where there is a defined benefit pension scheme anywhere in the equation then deep and often unproductive discussion is required as well as the expenditure of extensive professional fees.

While the intention of the legislation was clearly benign, the effect has been mixed. Many of the changes have been developed on the presumption that defined benefit obligations were guaranteed by the employers, a presumption that was not in the mind of plan sponsors at the time they were established. In addition much of the drive from the regulator has emerged from the policy of attempting to limit claims against the newly established Pensions Protection Fund.

Combined with complex and sometimes impenetrable rules, and tensions in public policy, the effect on daily corporate transactions has been profound. This book is an early attempt to find a practical pathway through the thicket of regulation; it is based on early practical experience, but there is no doubt that practice will change perhaps radically in the next few years, and the regulations and guidance notes issued by the regulators are also likely to have a short life span. Nonetheless it was thought to be useful to gather together in one place both the underlying documents necessary to form a view on practice, such experience as was available, and a guide to the way in which these issues might be approached for corporate lawyers and others for whom pensions is not their primary interest.

If you have suggestions for improvements in future editions of this publication please contact us via the publishers or e-mail us on DWPA2004@spiramus.com.

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