Kroll - UK Pension Schemes - Helping CFOs and Trustees Meet the Challenges of the New Environment

Following a series of high profile collapses, including one of Kroll's own cases, T&N (on which we acted as administrators, leading the restructuring), the Government introduced the Pensions Act 2004, set up the Pension Protection Fund (PPF) as a safety net for Defined Benefit (DB) schemes with insolvent employers and set up the Pensions Regulator to help ensure that liabilities are not 'dumped' on the PPF.

THE DYNAMICS OF CHANGE

The Pensions Regulator has been given sweeping powers to 'pierce the corporate veil' in certain circumstances and has issued guidance to pension scheme trustees that they need to be more proactive in understanding the credit risk associated with the employer (employer covenant) and "act like bankers". This has occurred against a backdrop of increasing DB pension scheme deficits caused by:

• Declining asset values
• Increasing liabilities caused by declining bond yields and increasing longevity

Finally, the adoption of new accounting standards FRS17 and IAS19, which require pension scheme deficits to be carried on balance sheet, has brought more visibility to the plight of employers and the financial risk associated with DB schemes.

HOW KROLL'S PENSIONS ADVISORY TEAM CAN HELP

Kroll's Corporate Advisory and Restructuring group is a worldwide leading corporate rescue, restructuring, insolvency and bankruptcy practice. Our independent status enables us to provide objective, unbiased, conflict free advice to help clients deal with this new environment.

The Pensions Advisory division has undertaken numerous assignments for both defined benefit scheme sponsors and trustees. With insolvency office holders as part of our team, we have also dealt with the consequences of employer failure and scheme termination first hand.

Our specialists also have extensive experience of advising other stakeholders such as banks, venture capitalists and other lenders on how best to manage their relationships in circumstances of change and distress.

PENSIONS ADVISORY SERVICES

The services we offer include:

• Employer covenant assessment and monitoring
• Assistance with contributions negotiations
• Employer covenant enhancement
• Support in liaison with the Pensions Regulator on clearance
• Assistance with scheme compromise negotiations
• Financial restructuring
• M&A advisory

Assessment drivers include contribution negotiations, merger and acquisition activity and financial or operational restructuring. We can help stakeholders analyse the key characteristics of the scheme sponsor that impact its ability to meet its pension obligations.

Our output would typically include assessments of:

• Profitability
• Cashflow
• Balance sheet strength
• Creditor priorities
• Performance trends and prospects

If necessary we can also perform sensitivity analysis and scenario modelling. Depending on the circumstances our work can be phased into preliminary analysis, in-depth assessment and full business review.

Our team has developed a sound understanding of the challenges currently facing scheme trustees and employers and has an established track record of providing innovative solutions.

We are clear in scoping and phasing our engagements so clients understand the objectives of the assignment, the work we are going to perform, the information we require, the output we are going to deliver, what we are going to charge and the assumptions underlying our cost estimates. In this way clients can be confident that we deliver exactly what they need, at an appropriate cost.