Ensuring a pension scheme is well funded with parental guarantee after company re-structure

In 2011, a client went undertook through a significant restructuring when the UK employer ceased to trade and the overseas parent created a new shell company to take on the role of statutory employer to the pension scheme.

A full buy-out PPF-compliant parental guarantee was put in place alongside a commitment from the parent to fund the scheme on an ongoing basis. The parent made it clear from the outset that they wanted to pay a stable level of deficit contributions, maintain a moderate risk investment strategy and, once the Technical Provisions deficit had been cleared, they would then look to make a single cash injection to finalise the buy-out and secure member benefits in full.

When advising the Trustees, it was important to maintain the support and trust of the parent company and to avoid potentially contentious situations by aggressively targeting a higher level of contributions.  The scheme benefitted from an exceptionally strong covenant and was well-placed to “chip away” at the deficit over a period of time before executing a buy-out. I therefore helped the Trustees focus on their long-term funding strategy rather than the precise level of their Technical Provisions and the length of their Recovery Plan.

As a result, less than 10 years after the re-structuring, the scheme is now fully funded on an ongoing basis and will shortly be adopting a formal journey plan (in line with tPR’s draft guidelines) to reach buy-out and wind-up within 2-3 years.