Background

The trustees of a pension scheme supported by a large UK employer needed to complete a valuation of the scheme, and required help in assessing the employer covenant, and in understanding the level of affordability of contributions to fund the scheme in the future.

The employer, a market leading technology company, is a UK subsidiary of a large international group, and significant dividends had been paid from the UK to the rest of the group.

Action

FRP’s Pensions Advisory team was appointed as employer covenant adviser to the trustees, and undertook a detailed review of the employer’s financial position.

Outcome

Our work identified that the employer’s financial position had weakened significantly, largely as a result of the dividends. We sought to understand the reasons for the dividends, and it was evident that poor worldwide financial performance coupled with significant levels of debt in the wider group had resulted in pressure being exerted on the employer to make the dividend payments.

After extensive negotiations a more appropriate dividend policy was agreed and documented, together with an increased level of contributions to the pension scheme.