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Received: 12th December, 2001
Abstract This paper considers, from the perspective of employers, how to project manage effectively the merger of pension schemes; discusses the legal constraints employers and trustees work under in relation to mergers; considers how to identify and to avoid potential problems before they happen; considers how to formulate the merger proposals; identifies the documentation required; discusses how to plan the communication process and deals with the transfer of assets and post merger formalities. It also looks at some technical issues relating to obtaining GN16 and section 67 certificates from Actuaries.
Keywords: mergers; GN16, section 67, section 37, stamp duty, transfers without consent, preservation; surplus
Introduction
Pension Scheme mergers can be very frustrating for employers. Multiple advisers create potential for significant fee growth. The legal issues are complex - employers will have to get to grips with GN16 certificates1 and section 67 certificates2 which sometimes the transferring scheme actuary will not give without changes to the merger proposals. Even worse, trustees will not do what they are told and start demanding benefit improvements as a condition of the merger.
Many problems with pension scheme mergers arise because of a lack of understanding of the legal constraints that the trustees are working under. If an employer understands what is going on, many of the problems associated with a merger can be avoided or overcome more effectively. A pension scheme merger, like any other complicated project, is capable of being managed effectively. It is important to appreciate, however, that it is the employer who should be driving the process. It is when the trustees or advisers drive the process that things start going wrong. Flow charts showing the key steps involved in pension scheme mergers are shown in Appendix 1.
Back to basics - what is a merger and why might an employer want to merge schemes?
Legally the word 'merger' is misleading. Schemes do not become one legal entity when they merge but the assets of one scheme (the 'Transferring Scheme') are transferred to the trustees of the other scheme (the 'Receiving Scheme'). In return, the Receiving Scheme trustees agree to take over the Transferring Scheme trustees' liability to provide benefits for the Transferring Scheme's former members. Usually the transfer of...