On 6 April, 2005, some of the main provisions of the Pensions Act 2004 came into force, bringing the issue of pensions in commercial transactions to the fore. The Act created the Pensions Protection Fund (PPF) to compensate members of defined benefit pension schemes, that wind up with an insolvent employer that cannot afford to fund members’ benefits. In addition, it introduced the Pensions Regulator, the new pensions watchdog, whose objectives include protecting the PPF through the exercise of anti-avoidance powers conferred on it under the Act.
The Pensions Regulator is charged with protecting the interests of the pension creditor, possibly the largest unsecured creditor of the company. A striking consequence of the Act is the new prominence of pensions in commercial transactions. Corporates, private equity investors and financial institutions must consider more carefully the pension obligations of the companies they are dealing with and the terms of the agreements they enter into. Trustees of defined benefit schemes will play a more significant role in the negotiation of certain transactions.
