Vol 17 (2020) - Issue 1

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Defined Benefit Pension Schemes: A UK System with a Cross-border Impact

Synopsis

Defined benefit pension schemes are often a key factor in many financial restructurings, particularly where there is a substantial or historically substantial UK subsidiary. They represent a large contingent obligation often in the region of hundreds of millions or even billions of GBPs.
In this article, we examine how such schemes can act as a significant impediment to a restructuring plan. This is the case even where the restructuring relates to a non-UK company (e.g. a US company in Chapter 11), so long as there is a related UK entity with a defined benefit pension scheme. We also examine how in recent years there has been an increase in political pressure and regulatory intervention to support the negotiating position of the scheme beyond its typically unsecured status.
The 'mood music' in the UK is that the position of scheme trustees will likely be strengthened due to proposed legislative changes, which include potentially far-reaching criminal and civil sanctions where a scheme’s ability to pay its members their benefits has been compromised.
This provides a complicated framework for financial creditors within which to work out a viable restructuring plan that works for all, particularly for those who may be unfamiliar with the complexities of UK pension law.
However, a better understanding of the duties, powers and motivations of scheme trustees, the Pensions Regulator and the Pension Protection Fund can assist in allowing meaningful engagement with stakeholders, and hopefully lead to positive consensual outcomes that work for all.