How to get the best for your scheme in M&As

Times of great change can be challenging for pension schemes, which risk falling to the bottom of the pile as executives focus on share price and employees worry about dreaded 'synergies'.

Making sure the scheme is given the attention it deserves can be a profitable move for all parties, but how can trustees make sure they do not trip up as the corporate landscape shifts around them?

Some argue trustees should view a takeover situation as an opportunity to sit down with the acquiring employer and negotiate to improve the position of the scheme.

Jonathan Reynolds, client director at professional trustee company Capital Cranfield, said: “The first thing trustees have to do is establish that line of communication with the sponsor and make sure they receive the information they should be receiving.”

You are only going to accept [a new arrangement] if the covenant that you are going to get is as good as the one you have got

Adrian Kennett, Dalriada

He said sponsoring employers facing acquisition could be convinced to distribute spare cash into the scheme prior to the sale.

Reynolds added: “If I’m buying a business I’m not in the business of buying their cash.

“You often have a situation where suddenly there’s cash available, potentially to buy the scheme out. When is the next time you’re going to have the chance to have that conversation?”

Exerting influence

Trustees said defined benefit schemes were more likely to be affected by their employer being bought than defined contribution schemes would be.

Richard Butcher, managing director of independent trustee company PTL, said schemes that required a change to their rules – for example changing the sponsoring employer – had more leverage to negotiate.

He said: “If the company wants to get regulatory clearance, that can be an opportunity for the scheme to exert some influence.”

However, he added a scheme that finds itself in a position of influence should not necessarily feel obliged to extract as much as it can from an employer or buyer.

“If you have [a good position] it doesn’t mean you have to battle hard to protect the best interests of the members,” he said. “It might be that allowing it to happen will put the scheme in a better position.”

Professional trustees said schemes with employers facing a sale may need an independent covenant adviser to help them understand the process.

“You are only going to accept [a new arrangement] if the covenant that you are going to get is as good as the one you have got,” said Adrian Kennett, director at professional trustee company Dalriada Trustees.

“If it isn’t, you want to seek additional funding or some contingent asset that maintains you in at least as good a position.”

Kennett said that as well as the covenant, trustees should consider the investment strategy and funding position of the scheme. If one is due to weaken, he said, trustees should look to strengthen the others as mitigation.