Letter from Pensions Regulator to Work and Pensions Committee regarding GKN Pension Schemes
Tuesday, 6 March 2018 07:45
Rt Hon Frank Field MP
Chair, Work and Pensions Committee
5 March 2018
Dear Mr Field
GKN pension schemes
Thank you for your letter of 22 February regarding
the GKN pension schemes. We
appreciate that a takeover situation like this can bring...Request free trial
Rt Hon Frank Field MP
Chair, Work and
Pensions Committee
5 March 2018
Dear Mr Field
GKN pension schemes
Thank you for your letter of 22 February regarding
the GKN pension schemes. We
appreciate that a takeover situation like this can bring
uncertainty to members of defined
benefit pension schemes. We are
working with the trustees of these
schemes to support
them as they seek to secure the best possible
outcome for members in the event of a
takeover of the sponsoring employer by Melrose.
As regards
your specific questions:
1. What engagement has TPR had with pension scheme trustees in relation to the
takeover bid, when
did this begin and who initiated it?
We initiated contact with
the trustees in
relation to the takeover bid
on 15 January 2018.
Subsequently we met with the trustees and are in regular communication
by phone and by
email.
2. What engagement has TPR had
with the GKN board
and with Melrose
regarding their respective plans for the pension scheme?
When we became aware of the possible
takeover, we wrote to both
Melrose and GKN,
setting out clearly how we
expect the defined benefit pension scheme to
be treated in the
event of a successful takeover. We have then met both
parties and have strongly
encouraged Melrose to make a clearance application
to us.
3. What is TPR’s
assessment of the covenant impact of GKN and Melrose’s
respective plans?
From the outset we
have been concerned that the increased leverage
involved in the
proposed takeover by Melrose is likely to
have
a detrimental impact on covenant. However,
confidentiality provisions mean I cannot share more
specific information.
In
any major corporate transaction, such as
a takeover, we expect the companies
involved to
identify if there
is potential material detriment to
a pension scheme and explain
how they will
mitigate against that detriment. We would
expect sufficient mitigation to be agreed with
scheme trustees to ensure that a
pension scheme is not placed in a worse
position by any
takeover. We would also
expect a protocol to be agreed
in respect of how the impact of any
future
events on covenant support for the scheme
should be mitigated (for example, if there
were to be any future disposals within
a group
or material return of value to
shareholders).
Clearance, as referred to in
response to the question above, will only be granted in the event
of material detriment being caused to a
scheme’s employer covenant, and where
we
consider that sufficient mitigation has been provided
to offset that material detriment.
We stand ready to deal promptly with
(complete) clearance applications
and encourage
parties in takeover situations where
the pension scheme may be materially affected to use
this process – as we did
in this case. In the absence
of clearance, our anti-avoidance
powers remain available for us to use
in respect of any significant corporate
action, if the
necessary criteria
are met. We can and will use our powers to make recoveries for the
schemes after the event should
that prove necessary and
appropriate. However, we cannot
compel any company to make
an application for clearance, nor do we
have power to block a
transaction before it happens.
The details of our anti-avoidance powers can be found at
http://www.thepensionsregulator.gov.uk/regulate-and-enforce/anti-avoidance-powers.aspx.
We continue
to monitor the GKN/Melrose situation closely.
I hope this information is helpful.
Yours sincerely
Lesley Titcomb
Chief Executive
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