corporate finance transactions
Roderick Ramage, solicitor, www.law-office.co.uk
published by distribution to clients on 31 December 2014
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does not accept any responsibility for
anything that any person does or does not do as a result of reading it.
This note draws attention to some common legal and
defined benefits or final or average
defined contributions or money
death-in-service (usually a lump sum
grouped personal pension plan
occupational pension scheme
personal pension scheme
Transfer of Undertakings (Protection
of Employment) Regulations 2006
share purchase The buyer acquires the target company and everything that goes
with it. The nature of the target and its
scheme affect the pension consequences.
(a) Independent company
with its own DC and DIS schemes.
Possibly no serious (or any) pension worries.
(b) Independent company
with a DB scheme (normally closed to new members and probably closed for
accrual of benefits). The main risk is
the cost of funding any deficit, so buyers prefer to buy assets.
(c) Subsidiary in a group
of companies participating in another group company’s DC and DIS schemes. Commonly the seller requires the target’s
employees to cease active membership of group schemes.
(d) Subsidiary in a group
of companies participating in another group company’s DB scheme. In addition to the cessation of active
membership, a pension debt might be triggered
assets purchase The buyer acquires only assets and often takes no
liabilities. The employees in the
business will pass automatically to the buyer under TUPE on the terms of their
(a) Personal pension
schemes, including GPPPs pass under TUPE.
(b) Rights under OPSs to benefits
on old age and invalidity and for dependants do not pass under TUPE.
(c) Active members of the
seller’s OPS are entitled to an alternative pension scheme from the buyer.
(d) Rights under a
stand-alone DIS scheme almost certainly pass under TUPE.
(e) If the seller’s
scheme applies to only the transferring employees, the buyer might voluntarily
take the seller’s scheme, in which case, broadly speaking, 1(a) or 1(b) above
contracting-out These transactions are usually a form of TUPE transfers but
outsourcing contracts from government and other public sector bodies are
subject to a policy principle (Fair Deal), which requires transferring
employees to be given pension rights equivalent to those in their former
employment. Old Fair Deal required the
transferring employees to be put into a scheme giving broadly comparable
benefits to those in the relevant public sector scheme. Under New fair Deal, which applies to central
government schemes, transferring employees may remain in their public sector
scheme and in some circumstances may transfer back into it. The Local Government Pension Scheme has long
since admitted contractors to it as an alternative to providing a broadly
comparable scheme. The rights of
transferring employees in the LGPS are governed by the 2007 Direction rather
than New Fair Deal.
The following can apply in one or more of the circumstances in 1
and 2 above.
(a) pension debt If the target company leaves a multi-employer
DB OPS, as in 1(d) above, and at least one other employer employs an active
member of it, the target is liable for a share of the scheme deficit, unless an
apportionment or withdrawal arrangement is made.
(b) Beckman rights Pension rights not for old age, invalidity or
dependants in an OPS (2(b) above), often, as in Mrs Beckman’s case, for an
unreduced early retirement pension on redundancy, pass under TUPE without any
funding to meet them. Employees, in both
share and assets deals, can have Beckman rights as a result of previous TUPE
(c) grieving widow syndrome If, on a TUPE transfer (2(d) above) or a
share sale in which active membership ceases on completion (1(c) above), DIS
insurance is not in place at completion, an employee might die immediately
after completion, so the buyer will be met the next morning by a grieving widow
with a babe in arms asking how much she will get, which will have to be paid
out of the buyer’s resources.
(d) hidden DBs The new definition of “money purchase” can
result in the target’s or the seller’s DC OPS having DBs and therefore the risk
of a deficit and the obligation to comply with the statutory scheme specific
funding regime. This can apply to 1(a)
and (c) above but if in 1(c) might result also in a debt under 4(a) above.
(e) buyer’s GPPP A buyer under 1(a) or (c) or 2(a) might wish
to put the target’s employees or the transferring employees into its GPPP at
unchanged contributions rates, but the employees’ contract right might be to
belong to the scheme they were in before completion.
(f) increased DC expenses Even if under 1(c) or 2(a) above, the buyer
permits employees to remain in the same PPS as before, the provider’s fees and
expenses might be higher than they were under the seller’s GPPP.
(g) automatic enrolment AE obligations are personal to the employer,
so compliance by the seller under 2 above is not compliance by the buyer. If 1(a) or (b) applies, and the buyer does
not change the pension arrangements, the target’s AE arrangements are
unchanged. If under 1(c) or (d) the
employees cease to be active members of the seller’s group schemes, the buyer
must enrol them automatically into an AE pension scheme. The buyer’s AE obligation applies to all the
transferring employees under 2 above, unless the buyer maintains any of the
employees’ PPSs or becomes the employer of any OPS under 2(d) and those scheme
are either AE or qualifying schemes. If,
in any of the circumstances in 1 and 2 above, the scheme in which the employees
are or become active members after completion are qualifying schemes in respect
of them, the target or the buyer will have no obligation to enrol them into an
copyright Roderick Ramage
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