On September 28, 2022, the Regulator published a blog on mergers and acquisitions (M&As) involving UK companies which sponsor a DB scheme. The Regulator considers trustees to be the first line of defence in ensuring pension scheme members are treated fairly in M&As and restructuring exercises. However, trustees should not be alone in protecting members, and employers, together with other group companies, have a key role to play.

 

In practical terms, the Regulator expects employers to alert trustees immediately about a proposed corporate transaction and for trustees to engage early to establish expected timescales, and any potential impact on the scheme covenant, subject to confidentiality requirements. Employers should not use market sensitivity and regulatory notification provisions "as an excuse to keep trustees in the dark".  

 

Bidders should have a plan to protect the scheme where there is likely to be a negative impact on the covenant, and "a clear, credible and well thought out business plan which considers the scheme's long-term funding objective". The Regulator expects a legally binding agreement to be reached with the trustees ahead of completion where an “arrangement” has been agreed. 

 

The Regulator will maintain its monitoring of market activity and has engaged in a number of transactions where it feels there may be a risk to pension savers. It expects trustees to be robust when defending members’ interests and company boards and bidders to treat the scheme fairly and equitably.

 

In the absence of the finalised version of regulations from the DWP in relation to the Regulator’s notifiable events regime, the Regulator has felt the need to reiterate these expectations in a blog. The awaited regulations are expected to include the "declaration of intent" provisions in legislation, which will impose new disclosure requirements on employers.

 

We do wonder how practicable some of the Regulator’s suggestions are. The blog states that “trustees should be provided with direct access to the bidder and their advisers at the earliest opportunity…to begin negotiating protections for savers”, but there is nothing in legislation requiring bidders to engage with trustees. The onus is on the seller to provide mitigation for any detriment the transaction may have on the scheme. The Regulator’s moral hazard powers, should it choose to use them, would be targeted on the employer and those associated or connected with it, which may or may not include the bidder, depending on the transaction structure.