A UK subsidiary which is part of an international food processor has a pension scheme in deficit. Following the acquisition of the US parent company, an existing US guarantee provided to the scheme had to be revoked, and needed to be replaced with something of similar magnitude.
FRP was appointed as advisers to the pension scheme trustees to assess the potential issues as a result of the transaction, and to review the guarantor’s ability to service the guarantee.
A review by our Pensions Advisory team of the UK subsidiary’s employer covenant – its legal obligation and financial ability to support the scheme now and in the future – identified that, without the continued guarantee from the US parent, the covenant would be significantly weakened.
Following negotiations with which we assisted, a Pension Protection Fund (PPF) format guarantee underpinned by a security over the assets of a fellow UK subsidiary was agreed, guaranteeing the obligations of the scheme.
Having been provided with the guarantees, the trustees wanted to certify the guarantee on an annual basis for PPF levy reduction purposes. We therefore prepared a detailed review of the guarantors’ accounts in line with PPF criteria, resulting in significant levy savings.
Without the guarantee from the US parent, the covenant would be significantly weakened.Gerald Smith Pensions Advisory