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Pension issues could block M&A transactions under Theresa May proposal

U.K. Prime Minister Theresa May
Theresa May

The U.K. prime minister plans to give The Pensions Regulator greater powers in corporate transactions that may have an impact on company pension funds, should the Conservative Party remain in power.

Theresa May said in a statement posted on the political party’s website April 30 that she would “protect the pensions of workers against irresponsible behavior by company bosses.”

The Conservative Party would give the U.K.’s pensions watchdog the power to scrutinize takeovers and unsustainable dividend payments that threaten the solvency of a company pension plan, said the statement.

“Under our plans, any company pursuing a merger or acquisition valued over a certain amount or with over a certain number of members in the pension scheme would have to notify The Pensions Regulator, who could then apply certain conditions,” it said.

Where no credible plan or willingness to ensure the solvency of a pension fund is in place, the regulator “could be given new powers to block a takeover. This would include the power to issue punitive fines for those found to have willfully left a scheme under-resourced.”

If fines are insufficient, company directors could be removed for a certain period of time. The statement also suggested the introduction of a new offense to make it a criminal act for a company board to intentionally or recklessly put at risk the ability of a pension scheme to meet its obligations.

“In short, we will tighten the rules on pensions during takeovers and increase punishments for those caught mismanaging schemes,” said the statement.

In a reaction statement, Darren Redmayne, CEO of Lincoln Pensions — which specializes in advice about pension fund covenants, the sponsoring employer’s legal obligation and financial ability to support a defined benefit fund — said: “As ever, the devil is in the detail? If the regulator will have power to veto ‘certain’ transactions, then which ones? The household names, the politically sensitive ones or those above a certain size? This is something that is easy to say but hard to do. I expect we will see many pledges along these lines in the remaining weeks ahead of the election.”

Along with the establishment of TPR a decade ago, a voluntary clearance process was also created. Mr. Redmayne said this “has become rarely used. Does the prime minister’s pledge mean that clearance will now become mandatory?” said Mr. Redmayne.

The U.K. will vote in a general election June 8.