The pension battleground

05 May 2008

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In February, a poll of more than 250 trustees of company final salary pension schemes found that 72% would be concerned at the prospect of being acquired by a buyout house. Trustees were concerned that a private equity sponsor would weaken the covenant thst commits an employer to finance the pension scheme. Recent proposals drawn up by the Department of Work and Pensions to give the Pensions Regulator greater power to force employers to inject more funds into company pension schemes post takeover should therefore be welcome news to trustees. By removing the need to prove that an employer acted intentionally to leave a pension deficit unfunded, the regulations could hamper the ability of private equity to restructure balance sheets of portfolio companies via a refinancing or debt issuance

The Government and pension trustees should be careful what they wish for. Private equity has proven itself as a sustainable model of ownership which produces well-run companies. Efficiently-run companies, aided by clever balance sheet management, enable employers to offer decent pension scheme options with healthy employer contributions. In any case, it makes little sense for a company to hold on to its pension scheme if it is a burden on the company and a hindrance to performance. It may be prudent for a pension scheme, especially a defined benefit scheme, to be sold off for the good of the scheme members. There is an obvious and growing need to ensure that the mistakes of the past 20 years are not repeated and scheme members protected with robust legislation. However, increased and onerous regulation, in adherence to an outmoded belief that running a pension scheme for profit by definition means running it into the ground, is unimaginative and broad-brush. Many will ask why we should trust a Brown Government to renew the pension system when many of his mistakes, such as the abolition of PEPs and Tessas and the decision to do away with the dividend tax credit, have played a major role in contributing to the pensions crisis the UK is currently facing.

At the BVCA 25th Anniversary VIP Summit a number of private equity firms were held up as paragons of the industry for the way they have adopted the Walker Report recommendations by producing detailed annual reports. Terra Firma was one and the credit is well deserved. Bridgepoint was another. Sorry, but a 17-page marketing document with cursory portfolio company information doesn't come close to the spirit of Walker.

Yours sincerely,

Nathan Williams

Editor, unquote"

Tel: +44 20 7004 7449

nathan.williams@incisivemedia.com.