A change of corporate ownership - reviewing the pension implications

We have provided actuarial and investment services to a £20m pension scheme, whose sponsoring employer is a manufacturing company in the aerospace industry.

During the latest valuation the Employer informed the trustees of a planned change of corporate ownership that would have significant implications on the business and its level of debt. Naturally, the trustees were concerned about the impact the change of ownership might have on the employer covenant - that is, their ability to fund the scheme in future. An added complication was that the amount of debt would be known only after the transaction completed.

Our team led the trustees through the challenging process of securing a long-term funding strategy in the face of the, as yet unknown, revised corporate structure.

Our approach

The employer's covenant adviser provided an estimated balance sheet, including the likely level of debt, and indicated that the transaction could affect the pension scheme negatively. As a result, the trustees were looking for a mitigation agreement with the sponsoring employer.

To give the trustees the degree of certainty they needed in the funding negotiation our advice covered the range of potential outcomes of the transaction in the form of a grid system, which we helped to populate. Each level of debt on the grid system corresponded to a certain discount rate and specific combination of immediate lump sum contribution and regular recovery plan payments. We helped the trustees negotiate these with the employer.

Throughout, we took a pragmatic approach and encouraged an open and constructive discussion. Once the grid system was agreed, it formed the basis of the choice of discount rate for the Scheme’s Technical Provisions.


Based on our advice, the trustees secured an appropriate mitigation package, which resulted in an immediate £2.1m contribution to the scheme when the transaction completed. This allowed them to consider options for de-risking their investment strategy - we supported the trustees through this process as well, with the £2.1m being invested in a pooled Liability Driven Investment (LDI) fund.

"Barnett Waddingham worked with the trustees to understand the implications of a revision to the covenant strength on the funding and investment assumptions. With their help we then produced an even-handed recovery plan that balances appropriate prudence with the sponsor’s desire to invest for sustainable growth."
Chair of Trustees