Case study: Defined Benefit Schemes merge to improve funding situation and capital structure (Pensions)
Background
- 3 defined benefit schemes with the same sponsor
- Only 1 scheme had a healthy surplus
- Combined deficit between £300m- £320m
- Employer paying administration and adviser costs for each scheme
- Pension deficit contributions stood at £38m per annum
- Not delivering value for members or efficiencies for sponsor
Our action
- Considered challenges for the 3 Schemes holistically including from the perspective of the PPF should the employer fail
- Contemplated how to leverage the scale and strong position of the strongest scheme for the benefit of the other scheme members as well as the Company and its shareholders and current employees
- Worked with all trustees and scheme advisers to deliver solution
- Merged 3 schemes into a segregated single trust with Winding Up Lump Sums offered to eligible members before the assets and liabilities transferred
Outcome
The merger builds on a clear alignment of interests where the Sponsor looked to provide the security that will enable the trustees of the strongest scheme to continue to build on their successful investment strategy for the benefit of all 3 schemes leading to greater funding certainty.
Subject to future valuations and investment performance pension deficit contributions could be lowered from £38m to as little as £17m per annum.
Administrative costs halved saving approximately £4m per annum.
The merged scheme will also benefit from “certain rights" in the event of "any future potential transaction of major brands”, with the creation of a single trust also expected to bring stronger governance.
Commenting on the agreement, Premier Foods Pension Scheme chair and LawDeb Pension Trustees managing director, Michael Chatterton, stated: “We firmly believe this new pensions agreement represents a more secure future for the group’s pension scheme members.”
Project Red is an innovative and ground breaking initiative to address pension funding that is delivering huge value for the members and for the company. Law Debenture, in particular Michael Chatterton and Alan Baker have both been instrumental in working with the company to develop this strategy and help bring it to conclusion.
Duncan Leggett, Premier Foods - CFO