UK - The kick off of the Pensions Act is causing short-term headaches for overseas companies with British subsidiaries, and is stifling merger and acquisition activity in the near term, according to Marc Hommel, head of human resource transaction services at PricewaterhouseCoopers.
The Pensions Act, which came into force in April of this year, has made four main changes to the function of pension funds and pension fund trustees. The pension fund is now considered an unsecured creditor if a company goes into administration; the unsecured creditor is now more significant in the chain of creditors; trustees must negotiate “hard” for control of cash contributions to pension funds; and the Pensions Regulator’s power has been increased to impose penalties and cross-company guarantees, Hommel (pictured) said.
These changes are having an impact on both the corporate and the trustees’ side. Financial directors are spending 40% of their time on pensions- related issues, Hommel noted. Meanwhile, “a wake-up call is coming for trustees,” he said. “It’s a huge burden on their shoulders.”
The biggest financial impact of these changes is that a higher proportion of cash flow will be used to plug pension deficits, he said.
Overseas companies with British subsidiaries are particularly concerned that they will no longer have the same freedom to repatriate funds or take cash dividends if the British entities have pension fund deficits, Hommel said. This issue particularly concerns US companies with UK subsidiaries, he noted.
“It’s not going to be easy, but in practice, most US companies are not going to fall foul of it,” he explained.
As a result, merger and acquisition activity has been slower recently as corporations absorb the implications of pension fund obligations and responsibilities. But Hommel believes this is only a temporary brake on M activity.
“We’ve seen a number of deals collapse because of worries about pensions obligations,” Hommel noted. “We’re advising purchasers to leave pension fund liabilities with the vendors.”
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