Case Studies
Company A
Company a is a successful FTSE 250 company with a market capitalisation of £1bn, minimal free cash and a DB pension scheme with an FRS17 deficit of more than £100m. in order to make a small acquisition or business investment it would be necessary to take advantage of banking facilities. That would push the pension debtor down the priority order on (most unlikely) insolvency hence clearance to proceed is needed from the regulator. As a quid pro quo for approval the regulator required the deficit to be funded over 2 years ? something which would necessitate far more additional debt than the proposed investment.
PCS worked closely with the Board of Directors to design, negotiate with the trustees and implement a comprehensive remediation plan. This included a funding plan which made use of contingent assets to allow cash injections to be spread over a longer period, the raising of additional debt in the context of the wider corporate financial plan, tax liability management, the derivation of a investment strategy which quantifies and controls the risk of a new deficit emerging relative to expected returns and costs, and a revised benefit package for the future.
Company B
Company B is a medium sized, privately owned, mature company that has declined in recent years and has pension scheme liabilities disproportionate to the size of today?s business. Despite no further benefits accruing, contribution demands under current regulation exceeded the ability to pay. The natural route would be for the company to be forced into administration and allow the PPF to meet the pension shortfall. The PPF only underwrites pensions up to a maximum of £25,000 per year, hence senior, life-long employees were to suffer badly.
A proposal was designed and put to deferred members to take transfer values in lieu of their benefits in the scheme. The company offered ad hoc, tax free payments to individuals who consented to transfer their liability out of the scheme. The top up plus the scheme?s normal basis of calculation was still much less than the PPF liability and the value placed in the accounts through FRS17. This materially reduced the residual liability and the company has survived. Jobs are saved and expected pensions for those taking the transfer, especially for the larger beneficiaries exceed that underwritten by the PPF.
Company C
Company C is a long established manufacturing business, which could not meet the minimum cash contribution required by the regulator. Administration, job losses and default to the PPF would seem to be the only route. Instead a deal was negotiated with the PPF whereby the pension scheme entered the PPF. Company C made a single payment to the PPF as a contribution to the deficit, provided security of certain of its assets and granted new shares to the PPF. Although significantly diluted, existing shareholders have recovered some value and the residual business has survived with no loss to other creditors and has good prospects without the millstone of the pension debt legacy.
