The MIRA Retirement Benefits Scheme, Warwickshire, England, completed a £70 million ($108.5 million) buyout with Pension Insurance Corp. for the entire pension fund, said Aaron Punwani, partner at Lane Clark & Peacock, specialist adviser on the transaction and actuarial adviser to the trustees.
The sponsoring employer, MIRA — a vehicle engineering, research and product testing company — also participated in the £42.6 billion Universities Superannuation Scheme, London. MIRA sold its business and assets to automotive test systems firm HORIBA this month, with the sale proceeds divided between the pension fund and USS.
The trustees of the MIRA pension plan then used its share of the sale proceeds to enter into a buyout with PIC. In doing so, the trustees compromised the statutory debt due from MIRA, rendering the pension fund ineligible for inclusion in the Pension Protection Fund, which takes on the pensions promises of insolvent companies.
“What normally happens in an insolvency situation is that a company goes insolvent and statutory debt is triggered, meaning the pension fund would wind up and the company would be obliged to pay the full cost of buying out the benefits,” said Mr. Punwani in a telephone interview.
In this case, trustees took the “unusual” step to compromise on the debt. By giving up their right to claim the debt against the employer, the trustees also gave up the eligibility of the pension fund to fall into the PPF.
“They could do that because things happened simultaneously: the business was sold and (the pension fund received) sale proceeds; the trustees compromised their debt; and the trustees bought out” the pension fund. “The only circumstance where it is OK to compromise your debt and give up PPF eligibility is if, at the same time, and back to back, you have bought an insurance policy that makes members at least as well off as if they had been in the PPF,” said Mr. Punwani. While that is tricky, he said, the “intricate” timing meant the trustees could safely complete the process.