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Case study

Merger implications for pensions

Pensions & benefits Housing Associations DB pensions


Two Housing Associations were investigating a merger. Both Housing Associations had their own defined benefit (DB) pension obligations across a range of schemes, including schemes within TPT, multi-employer schemes and the Local Government Pension Scheme (LGPS).

The associations asked us to advise on implications of the merger for their DB schemes, ensuring they managed regulatory risks under the Pension Schemes Act 2021. They were also keen to limit any financial impact on the associations and asked us to help them communicate the details of the merger to each trustee board. A clear and reassuring message would be key to help achieve the associations’ combined objectives.

Our approach

We worked closely with the Associations’ finance and treasury teams to understand the merger’s legal structure and financial implications, including the expected impact on third party lending terms.

Using this information, we compared the financial support provided to each DB scheme both pre- and post-merger. This included considering scheme funding levels and funding needs in the context of the financial profile of the two separate Housing Associations before the merger and of the combined organisation post-merger.

We assessed the merger in the context of the prescriptive Contribution Notice tests set out by The Pensions Regulator (which consider the ‘Day 1’ impact of corporate events by reference to a DB scheme’s buy-out (solvency) deficit) and advised on whether the Contribution Notice tests were potentially triggered for either Association. This was a crucial step in helping the associations manage new regulatory risks.

The outcome

Pre-merger each Association was financially robust, with uncharged assets providing considerable coverage over unsecured creditors. Post-merger, these characteristics would remain overall. But it was clear that the level of coverage for one of the DB schemes in isolation was to reduce because of the merger.

However, what was important was to assess the materiality of this impact and demonstrate the extent to which the expected benefits of the merger (eg synergies) would over time offset any negative impact. Materiality is not defined by regulation; professional judgement is required. We concluded that, overall, there were clear positive elements to the merger and that in our view no mitigation was required to any of the DB schemes.

Our work ensured the Associations were able to clearly document how a robust process had taken place during the merger, with pension matters being appropriately considered – this ensured each Board complied with regulatory requirements and carefully managed their own pensions risk, and that of the new entity.

We worked closely with the pension teams of the Associations, supporting in proactive discussions with each DB scheme trustee board. Through our analysis we helped each Association efficiently and successfully demonstrate that mitigation was not appropriate, that the merger was positive for the long-term prospects of both Housing Associations (and therefore the long-term covenant strength afforded to both schemes), ensuring that pensions matters were not a hindrance to a smooth merger.

Very many thanks indeed to you and the team for such a thorough piece of due diligence work. Everything was crystal clear which has made our internal reporting simple and concise.

Executive Director of Finance, Housing Association client

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