Contingent assets for pensions
There are a number of reasons why pension scheme trustees and sponsoring employers may want to put in place contingent assets which support the employer's financial covenant to the scheme.
For both employers and trustees, contingent assets which meet PPF requirements can lead to a reduction in the risk-based component of the PPF Levy.
Additionally, contingent assets may be used as part of the pension scheme funding and valuation process. Often, trustees with the benefit of a contingent asset are able to adopt a different approach to the scheme valuation or recovery plan than they would without that contingent asset in place.
Also, contingent assets may be included as part of general scheme management or as a result of corporate activity, particularly in circumstances where the contingent assets are requested in response to changes made by the employer to the pension scheme.
Our experience includes a broad range of such assets, including:
- parent company guarantees;
- charges over real estate;
- charges over other assets, including monies in a company's bank account, and
- escrow agreements
We work with our real estate and banking teams as appropriate to ensure that adequate documentation and appropriate terms are achieved.
Our experience includes advising both employers and trustees on these issues.
We can also advise employers on compliance with their banking covenants in the context of pension scheme activity.
- Negotiation of a parent company guarantee which was linked to the scheme's de-risking strategy
- Pension protection fund's standard form guarantees
- Security agreement relating to a charge over the sponsoring employer's freehold property
- Changes to a parent company guarantee following sale of the sponsoring employer