UK - Trustees have welcomed the Pensions Regulator's guidance for trustees on the abandonment and clearance of defined benefit (DB) pension schemes.
The Regulator issued a reminder to parties considering corporate transactions as the underlying principle for considering clearance was whether the event was financially detrimental to the ability of the pension scheme to meet its pension liabilities.
The reminder comes ahead of a planned update on clearance guidance during the summer.
A trustee representative who preferred to remain anonymous said: “This is regarded by most trustees as good news as it recognises that leverage can significantly weaken the employer covenant. It means that private equity vehicles will have to recognize that pension fund deficits measured under IAS19 is not sufficient.”
BDO Stoy Hayward Investment Management Actuarial Director, John Broome Saunders, added: "This is a significant toughening of the Regulator's position. It effectively means that defined benefit pension issues need to be considered irrespective of whether the scheme appears to be in deficit or not. To date, the mere threat of Regulatory intervention has resulted in significant additional contributions to DB schemes in order to clear the way for leveraged deals, usually backed by private equity. “
The regulator also issued abandonment guidance, which took into account responses received from its discussion paper, outlining how trustees should deal with a proposal involving the abandonment of a defined benefit pension scheme.
It noted the importance of understanding changes to the employer covenant and the potential impact on the pension scheme where the link with an employer of substance was removed.
The Pensions Regulator chief executive Tony Hobman said: "We have taken on board many of the comments and useful suggestions put forward and this is reflected in the guidance.”
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