Engineering research consulting
Background: The Trustees of the company’s smaller defined benefit pension scheme with assets of c. £16 million were seeking to establish the ability of the scheme employer to meet deficit contributions to the scheme and to what extent contingent asset support might be available recognising that the employer was a not for profit organisation and the parent company of a group structure including trading activities owned by charities none of which were participating employers. Instructions: Our instructions were to carry out a covenant assessment of the scheme employer identifying its relationships with other group entities and the risks they posed to the scheme and opportunities they might also provide for additional cash and contingent assets in support of the scheme. Action: We carried out a covenant assessment reviewing recent financial performance and future projections assessing the level of free cash flow available going forward and reviewed the group structure identifying for the Trustees the risks and opportunities arising from the employer’s relationship with other group members. We also identified some proposed sales of surplus assets which would give rise to significant cash receipts in excess of group requirements which therefore could be available to eliminate the current deficit in its entirety. Follow up: Although the covenant assessment was adequate in relation to the size of the deficit we recommended the Trustees consider seeking a charge over the surplus assets pending their disposal and seeking agreement from the employer to eliminate the deficit upon realisation of the assets to be disposed of.
Printing Technology Manufacturer and Developer
Background: The scheme employer was part of a major multi-national group of companies in negotiations with the scheme employer and the executive management of its ultimate quoted parent company as part of the ongoing scheme funding process having reached its triennial valuation date. The employer had already undertaken its own covenant review to include overall group to assist it in negotiations with the Trustees of its pension scheme. Instructions: The instructions were to review the employer’s covenant assessment and advise them independently of the strength of that covenant and make recommendations on affordability and comment on the existing parent company guarantee in place and availability of other potential security. Action: The employer’s covenant assessment was reviewed and additional verification of data was undertaken and information obtained from the scheme employer. This also embraced discussions with the employer’s advisers who had carried out the covenant assessment for the employer. The Trustees were then advised of the result of that review and the strength of the covenant based on that review. A recommendation was made to the Trustees of a substantial figure they should seek to repair the scheme deficit of over £300 million based on the outcome of that review and the assessment of what was affordable. Follow up: The employer disputed the amount sought offering a considerably lower figure and ongoing funding at levels considered to be totally inadequate by the Trustees both in amount and the period over which it was offered. Discussions were entered into with the ultimate employer who took over control of the negotiations from the scheme employer. They presented forward group cash flow projections and information about group plans to justify their stance. These indicated there was still a significant level of uncommitted cash available which did not justify the very low level of their offer to the Trustees. Negotiations continue and the matter now involves the Pensions Regulator as the 15 month scheme funding deadline has been breached.