UK - Trustees may face pressure to relinquish contribution rate-setting powers if firms fear their pension schemes are deterring would-be suitors, lawyers claim.
They believe a deal could be justified if the scheme sponsor gave a commitment to contribution levels in the future or a one-off cash injection to cut fund deficits.
Lawyers say many employers fear prospective takeover deals could be jeopardised by scheme funding problems following the collapse of attempted acquisitions at retail giants WHSmith and Marks & Spencer where under-funded pension schemes acted as “poison pills”.
Lawyers point out that while few scheme rules mirror WHSmith and give trustees the power to order a wind-up, the ability to set potentially high contribution rates can be equally off-putting to potential suitors.
Hammonds partner Francois Barker (pictured) said: “Trustees could amend the deed to give up their powers – but they would be expected to strike a good deal which justified it as in the best interests of members.”
And Barker said it would need to be “something pretty substantial”.
Sacker & Partners believes a deal could be justified by a commitment on future contribution levels or a one-off cash injection.
Partner Chris Close said: “Some sets of trustees may view that as the quid pro quo for diluting or getting rid of some of these important powers.”
But he added: “That is not an easy thing for trustees to assess because once they have given up those powers they cannot be resuscitated in the future.
“The trustees must look at the longer game and just not necessarily react to the overtures of a prospective buyer making a cash injection of some proportion of the debt and rely on its good intentions to eliminate the rest of the debt going forward.”
He also warned that trustees who surrendered their powers could leave themselves open to criticism from members in the future.
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