According to Punter Southall Financial, restructurings at companies trying to avert insolvency could have a major impact on UK pension schemes.
According to Punter Southall, current economic conditions will trigger corporate restructuring over the course of this year as companies try to avoid insolvency, financial distress or significant deterioration in trading performance.
This, in turn, might involve moving key assets out of the sponsoring employer and weakening the pension scheme – even if the legal structure is unchanged, and the positions of the scheme and its sponsoring employers within the corporate hierarchy remain the same. "For instance", the company said in a note, "if the restructuring involves transferring some profitable contracts from the employer to another group entity, with the remaining business of the employer becoming significantly less profitable, the on-going support for the scheme will be weaker going forward".
The consultancy also argued that companies with defined benefit schemes might be particularly vulnerable to material changes in the strength of the employer covenant.
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