De-risking, buy-outs and mergers

The growth of funding deficits in defined benefit occupational pension schemes, together with the ever growing legal and regulatory burden of operating such schemes, has inevitably led to an increased recognition of the financial risks posed to employers by the operation of and participation in such schemes. Unsurprisingly, many employers have reacted by seeking to reduce the risks posed by their defined benefit schemes and, where possible, to eliminate those risks. Historically, employers could eliminate the risks by terminating the scheme and winding it up, although such an approach could result in pensioners suffering reductions in their pension income on retirement and could also lead to employment law complications.

Before 11 June 2003, an employer who terminated and wound up an underfunded scheme would trigger a statutory debt under the Pensions Act 1995, s 75 (a “s 75 debt”) payable to the scheme. However, at that time, the relevant basis for determining whether a scheme was underfunded on wind-up, and therefore for determining the amount of any s 75 debt, was the minimum funding requirement (“MFR”). As the MFR basis underestimated the true cost of providing members’ benefits

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Minister for Pensions hosts roundtable on ‘Pound for Pound’ initiative in shift from cost to Value for Money

The Minister for Pensions, Torsten Bell MP, has hosted a roundtable with regulators and leading pension providers to support a joined-up approach to Value for Money (VFM) in pensions. The event marked the first public discussion of the ‘Pound for Pound’ (‘£4£’) initiative, aimed at shifting the UK market from cost-based comparisons to broader value-based metrics, shifting market conversations away from cost towards value. This shift is essential for the success of the government’s proposed approach set out in the Pension Schemes Bill 2025. Insights from Australia’s superannuation system were central to the session, highlighting how clear benchmarking, transparency and regulatory oversight have transformed both member outcomes and the understanding of value in Australia. Intended to inform the impending regulatory consultation on VFM metrics, the superannuation system formed a key reference point as the discussion explored how lessons from Australia and insights from providers could shape regulatory thinking and support the development of the Pension Schemes Bill. Roundtable participants including the Department for Work and Pension, the Financial Conduct Authority, Pensions UK and a number of the Mansion House Accord signatories, agreed that now is the time for government, regulators and industry to collaborate in shaping and embedding a robust, fit-for-purpose VFM regime.

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