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Pension liabilities in UK corporate transactions are often an
issue but generally only where there are defined benefit pension
liabilities. The need to comply with auto-enrolment and the various
protections associated with it may create practical challenges.
With highly prescriptive requirements, it needs to be done
right.
SHARES OR ASSETS
As ever, different issues apply according to whether it is a
share or asset transaction. The issues to be addressed will also
depend on the nature and design of the pension schemes currently in
place.
SHARE TRANSACTIONS
A change of ownership need have no impact on a company's
pension arrangement. However, a buyer will need to:
check that the target has met its auto-enrolment obligations,
including record keeping, information provision and monitoring of
jobholders;
consider whether its participation in the current scheme can be
continued post-transaction; this will usually be possible with NEST
or a group personal pension plan and is less likely to be an option
if the scheme is an occupational pension scheme, particularly if it
is a group-wide scheme with other participating employers; and
if participation in the scheme cannot be continued, manage the
target's exit and discharge of liability from the current
scheme and establish alternative arrangements within one
month.
There is a prohibition on employers taking any action that will
result in a jobholder ceasing to be an active member of a
qualifying scheme, unless the jobholder is brought into a new
auto-enrolment scheme within one month and with effect from the
date they ceased to be covered by the previous scheme.
If the current scheme (or one of them) is a defined benefit
pension scheme, all risks commonly arising with such schemes will
need to be considered, including funding obligations and Pensions
Regulator powers. Careful due diligence may be required. Please
visit the "Pensions Regulator" and "Pensions in
corporate transaction" pages on our website for more
information.
CHECKLIST:
Share transactions
Check auto-enrolment compliance
Option to continue NEST or personal pension plans
Exit or continuation of any occupational pension Scheme
Replacement arrangement if exiting current scheme
Asset transactions
Change in staging date?
Comply with auto-enrolment from correct staging date
Match existing contributions under group personal pension
plan
Comply with minimum standards under the Pensions Act 2004 for
occupational pension schemes
ASSET TRANSACTIONS
On an asset transaction, employees may be transferred under the
Transfer of Undertakings (Protection of Employment) Regulations
2006 (TUPE).
TUPE requires maintenance of all employment rights including
terms relating to a group personal pension plan but excluding
rights to old age, death and disability benefits under an
occupational pension scheme.
The auto-enrolment rules, however, apply separately to a
succession of employers. In particular, they provide that the
staging date of the acquirer will apply from the date of transfer.
Auto-enrolment requirements may therefore either accelerate or
terminate for affected employees on an asset transfer.
However, if the employees were previously participating in a
group personal pension plan whether or not pursuant to
auto-enrolment arrangements, TUPE will require maintenance of such
arrangements and applicable employer contributions post transfer
irrespective of the staging date.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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