In her speech, Nausicaa Delfas of TPR emphasized the importance of early and proactive engagement between trustees and employers during M&A to protect pension schemes. She highlighted that TPR's role is not to prevent M&A but to ensure pensions are fairly considered.

Introduction

In a recent speech, Nausicaa Delfas, the Chief Executive of the Pensions Regulator (TPR), emphasised the crucial role of early and proactive engagement with pension scheme trustees for companies contemplating mergers and acquisitions (M&A). With the pensions landscape undergoing significant transformation, she outlined TPR's proactive stance in safeguarding pension savers' interests amidst these changes.

Over recent years, the pensions landscape has been transitioning from a traditional one-scheme, one-employer model to a competitive marketplace of schemes and providers. This continuing shift, coupled with the further proposals for change announced in the Autumn Statement, aims to improve outcomes for pension savers through consolidation, enhanced trusteeship standards and improvements in retirement income solutions.

TPR's stance

Delfas observed the current robust funding status of defined benefit (DB) pension schemes, noting that they are more financially secure than they have been in more than a decade and a half. Research carried out by TPR estimates that as of September 2023 "over 80% of schemes are in surplus on their technical provisions compared to around 50% at the start of 2022 [and]over half of all DB schemes may have sufficient funds to buy out their liabilities with insurance companies, should they choose to do so".

This strong financial footing of pension schemes potentially encourages M&A activity and Delfas emphasised that TPR's role is not to obstruct such transactions but to vigilantly protect the interests of savers, ensuring that pension schemes are fairly considered alongside other financial obligations. She highlighted that this is a collective responsibility, pointing out that, while trustees are the primary protectors of scheme members, TPR expects both departing and incoming executive management teams to "support trustees to implement a robust funding plan". 

Delfas warned against M&A activities that fail to address potential risks to pension schemes, labelling such actions as avoidance, and reminding potential buyers that TPR is equipped with various tools to counter avoidance, including Financial Support Directions and Contribution Notices. These measures were built on by the Pension Schemes Act 2021 making them easier to use, with higher fines and even some criminal sanctions – although TPR's policy on the use of its criminal powers emphasises that TPR will only use such powers in the most egregious cases. 

Delfas also mentioned the government's pledge to broaden the scope of events that must be reported to TPR by trustees and employers under the Notifiable Events framework, with long-awaited new regulations expected to be introduced soon. However, she maintained that, regardless of regulatory changes, the key to successful M&A outcomes lies in early discussions between companies, trustees and TPR.

It is evident from the speech that TPR remains prepared to engage swiftly with relevant parties to meet business timelines and to evaluate transactions for potential adverse impacts on pension schemes, ensuring that suitable safeguards are in place. Delfas revealed that TPR proactively monitors market activities and engages where there is perceived risk to pension savers, drawing on intelligence from various sources, including whistleblower reports and other regulatory bodies.

Emphasising confidentiality, Delfas made it clear that concerns over market sensitivity should not deter engagement with trustees or TPR. She also advised that companies seeking additional certainty regarding TPR's anti-avoidance measures can request clearance on transactions to avoid any unforeseen complications.

Delfas concluded by emphasising that TPR's intervention is unlikely if trustees are well informed, can draw upon relevant expertise and are actively protecting members' interests. However, where these conditions are not met, and savers' retirement incomes are at risk, TPR is prepared to step in, initially through supervision and, if necessary, by escalating to enforcement. TPR's ultimate aim is to foster constructive resolutions with trustees and corporate entities, relying on its enforcement powers only as a last resort.

Key takeaways

The key takeaways from Delfas' speech are that, when engaging in M&A activity, TPR expects management teams to:

• provide trustees with direct access to the bidder at the earliest opportunity;
• ensure M&A activity is backed with a well-thought-out business plan which considers the pension scheme's long-term funding objectives and the measures needed to protect the security of the scheme; and
• stay true to their word – if trustees and TPR agree an acceptable arrangement, it should not be watered down after the transaction has taken place. This could lead to TPR taking further action. 

Conclusion

Delfas' speech underscores TPR's commitment to adapting to the evolving pensions landscape while protecting the interests of pension savers, particularly in the context of M&A. Her message to companies and trustees is clear: collaboration and early engagement are essential for safeguarding pension schemes and their members.