Substitution of principal employer
Produced in partnership with Blake Morgan LLP

The following Pensions practice note produced in partnership with Blake Morgan LLP provides comprehensive and up to date legal information covering:

  • Substitution of principal employer
  • Definitive deed and rules—the enabling power
  • Trustees’ considerations
  • Trust law and employer covenant issues
  • Statutory employer issues
  • Considerations of the departing principal employer
  • Considerations of the new principal employer
  • Formalities for the new principal employer
  • Definitive deed and rules
  • Pre 6 April 2016 contracting-out requirements
  • More...

Substitution of principal employer

Definitive deed and rules—the enabling power

The trustees should first ensure that there is a power under the scheme’s current definitive deed and rules to substitute the principal employer in the manner required.

If there is no such power, or if the existing power is not sufficient to permit the substitution of the principal employer as proposed, the parties need to consider whether the scheme can be amended to include such a power.

Trustees’ considerations

Trustees (in particular) should not automatically exercise any power vested in them (or give their consent where relevant) to admit a new principal employer in substitution of the departing principal employer.

Where the scheme is a defined benefit scheme, the trustees will need to consider other issues:

Trust law and employer covenant issues

Trustees need to have regard to their trust law duties and should first consider all the relevant circumstances, including:

  1. the employer covenant of the new principal employer. In particular, will the new employer provide a stronger or weaker covenant than the employer which it is intending to replace? The trustees may need to obtain a formal covenant assessment before agreeing to the substitution. This should be factored into any corporate timescales. If the covenant of the new employer is perceived weaker, it may be difficult for the trustees to agree to the substitution in the absence of additional mitigation (eg

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