Our client wished to purchase another company which had a significant deficit in its defined benefit scheme which both vendor and purchaser agreed needed to close to future accrual, with a Group Personal Pension to be set up in its place.
The adjustment to purchase price in respect of pensions could not be agreed. The deficit on a solvency basis was £18m.
We agreed an initial reduction in the purchase price plus a further price adjustment based on setting up an escrow account which would pay out an amount based on the success of an enhanced transfer value exercise. We assisted the client in the enhanced transfer value exercise by designing the enhancement that would be acceptable to an independent financial adviser and that accommodated an agreed budget.
We designed the statements to be issued to all employees and former employees, setting out their benefits and the relevant enhancements that would be made available. The vast majority of employees agreed to transfer as the client wished to focus its efforts on current employees. We used the remainder of the client’s budget to make an offer to former employees. We achieved a take up rate of 60%, improving the solvency level of the Scheme by about £7m.
In addition, in order to reduce the volatility of the funding level of the scheme and ensure that there are no costs going forward, we have implemented a change in the investment strategy.
Outcome for the client
Our ideas enabled the corporate transaction to proceed, ensured that the scheme was fully funded on a conservative funding basis and had a lower risk investment strategy to reduce funding volatility.