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GETTING THE BEST OUTCOME
FROM A BAD SITUATION
Bob Scott
Senior Partner, LCP
@LCP_Actuaries
Chaired by
Helen Forrest Hall
Policy Lead: DB, PLSA
@hforresthall
HALCROW PENSION SCHEME
Background
CH2M
HGL
HPS
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“PROJECT MAGNOLIA”
NewCo
Outline
CH2M
HGL
PPF
HPS2
HPS
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REGULATED APPORTIONMENT ARRANGEMENT
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REGULATOR’S S89 REPORT
11 July 2016
“The agreement in this case gives members the option to transfer to a new scheme
providing pensions above PPF compensation levels, while also preserving jobs and
growth by avoiding HGL’s insolvency. We were satisfied that this was the best
available outcome in challenging circumstances.
“This type of pension restructuring is rare, and we will only agree where stringent
tests are met, so that they are not abused. However, this case also clearly
demonstrates that when we receive the information we require from co-operative
employers and scheme trustees, we can use the tools available to us as part of the
regulatory framework to agree innovative restructuring solutions.”
Lesley Titcomb, Chief Executive of TPR
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GETTING THE REGULATOR TO SAY “YES…”
…to a “Regulated Apportionment Arrangement”
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THE PARTIES INVOLVED
Many parties working together
Halcrow
Parent
CH2
Company
lawyers
Trustee
Admin
Company
actuary
NewCo
Trustee’s
actuary
Trustee’s
lawyers
Trustee’s
covenant
adviser
PPF
Pensions
Regulator
Regulator’s
/ PPF’s
advisers
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HISTORY
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HALCROW PENSION SCHEME
Timeline
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HALCROW PENSION SCHEME
Timeline
(continued)
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PROJECT GRAVITY
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PROJECT GRAVITY
Court Case
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PROJECT GRAVITY – ISSUES
Presented to Court
1
Can a bulk transfer certificate be given?
2
Will HPS2 be eligible for the PPF?
3
Should employees still accruing benefits have been consulted?
4
Should the Trustees have pretended that the PPF didn’t exist?
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PROJECT GRAVITY – OUTCOME
Comments by Judge on Trustees conduct
137. Having considered that evidence including the professional advice given, it is clear to me that
the Trustees undertook a careful and proper review of all of the relevant issues and took full and
proper professional advice in relation to all of the relevant issues which arose.
The minutes of their numerous meetings and the evidence before the court, reveals a careful and
proper consideration of those issues and that advice. In my judgment, the Trustees did not take
account of any irrelevant considerations and the decision which they reached, subject to the
determination of the legal issues and the approval of the court was one which a reasonable body of
trustees acting reasonably could have reached on the basis of the information before it.
138. Had it been necessary and had I taken a different view in relation to the legal issues, I would
have approved the Trustees' decision to enter into the Transaction.
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PROJECT MAGNOLIA
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PROJECT MAGNOLIA
Post Court case
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PPF UNDERPIN
Pensioner under NPA
Lower increases
PPF Compensation
Scheme pension
90% of initial rate
55
60
65
70
75
80
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PPF UNDERPIN
Pensioner under NPA receiving a temporary pension
lifetime
90% of initial rate
including temporary
pension
PPF Compensation
Scheme pension
55
60
65
70
75
80
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TAX
Annual Allowance and Lifetime Protections
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MEMBER CONSENTS
Outcome
Declined
1%
Accepted
92%
Other
8%
No reply
7%
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“PROJECT MAGNOLIA”
NewCo
Outline
CH2M
HGL
PPF
HPS2
HPS
@LCP_Actuaries
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A QUICK DIVERSION…
Other mechanisms for restructuring accrued pension rights
Case
What happened
Uniq
Employer freed from pension scheme obligation in return for trustees taking effectively a 90% stake in company.
Company sold, resulting in a net additional £101m being paid to the scheme. These additional funds allowed
scheme to wind up outside the PPF with higher than PPF benefits.
Kodak
Company released from pension scheme obligations, scheme paid $325m for an interest in a part of the Kodak
business. Members offered choice of either remaining in the Kodak Pension Plan and falling into the PPF or
joining a new scheme, with benefits lower than the original plan but higher than the PPF. New scheme has no
sponsoring employer
BHS
“Project Thor”
Example X
The Section 75 debt was compromised in conjunction with a business sale and above PPF benefits bought out
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CONCLUSION
Compromising accrued benefits can be done within current regulatory framework
But the process is likely to be:
Expensive, time-consuming and complex
Many different parties
Bar is generally set high
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SCOPE
This generic presentation should not be relied upon for detailed advice or taken as an authoritative statement
of the law.
If you would like any assistance or further information, please contact the partner who normally advises you.
© Lane Clark & Peacock LLP 2016
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TRUSTEE CONFERENCE 2016
In search of the governance premium
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