Defined benefit pension schemes in lending transactions


Published by a ³ÉÈËÓ°Òô Banking & Finance expert
Practice notes

Defined benefit pension schemes in lending transactions


Published by a ³ÉÈËÓ°Òô Banking & Finance expert

Practice notes
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Although defined benefit pension schemes (DB schemes) are in decline in the private sector, there still remain in excess of 5,000 private sector DB schemes with over nine million members.

Concerns around underfunding and employers attempting to evade liability have resulted in a complex regulatory and legislative landscape that mean DB schemes should be considered by lenders and their lawyers at the outset of a transaction and during any restructuring or insolvency.

The Pensions Act 2004 (PeA 2004) gave the Pensions Regulator (TPR) the ability to issue contribution notices or financial support directions to parties connected or associated with the scheme employer, making them liable to provide support or funding to underfunded DB schemes (known as ‘Moral Hazard’ powers). Further, PeA 2004 introduced a legal requirement to notify TPR about various events which occur in relation to a scheme employer under a DB scheme. This includes a requirement to notify TPR of a breach of lending covenant.

The issue of underfunded DB schemes was drawn into the spotlight again following a number of high

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Jurisdiction(s):
United Kingdom

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