The Takeover Panel has finally published its conclusions to the consultation on "pensions scheme trustee issues", undertaken between July and September 2012.

The resulting amendments to the Takeover Code, which are broadly inline with the changes proposed last year, will apply with effect from 20 May 2013.

The changes require bidders embarking on takeovers subject to the Code to explain their plans for the target's trust based defined benefit pension scheme, up-front. Scheme trustees will also have the right to append their opinion on the offer to the target board's circular (or put it on a website).

The Takeover Panel's changes extend to the trustees of the target's pension scheme rights which are comparable to those applying to employee representatives.

Under the changes to the Code:

  • the bidder must state its intentions with regard to employer contributions to the target's scheme (including in relation to current arrangements for the funding of any scheme deficit), the accrual of benefits for existing members and the admission of new members;
  • if no changes to the scheme are intended, the bidder must make a statement to that effect;
  • statements made by the bidder or target board will be binding for a period of 12 months, unless there is a material change of circumstances;
  • certain documents must be made available to the trustees;
  • the trustees have the right (and must be told of that right) to append to the circular (or publish the opinion on a website) their opinion of the effects of the offer (and revised offer) on the scheme; and
  • if the bidder and trustees reach an agreement on the future funding of the scheme, then a summary must be included in the offer document. If the agreement is a material contract of the bidder it must be published on a website.

Did the consultation impact on the Panel's conclusions?

The Panel's proposals have been watered down in several respects:

  • The changes only apply in respect of trust based schemes with a defined benefit element. We agree with the Panel that it is only where the scheme contains defined benefits, with the potential for a funding deficit, that it is important for the trustees to have an early opportunity to make their views known on the effects of the offer on the scheme. Defined contribution arrangements will probably be contractual terms so any intention to alter them was probably already covered elsewhere in the Code.
  • The bidder will not be required to state its intentions with regard to the likely repercussions for the target's scheme of the bidder's strategic plans for the target. On balance we agree that the bidder's strategic plans for the target are unlikely to have repercussions for its pension scheme, and that the trustees' main concerns will be covered by the requirement for the bidder to state its intentions regarding contributions, benefits and admission.
  • There will be no requirement for the target board to set out in its circular its opinion (and the reasons for its opinion) on the effect of the offer (and any alternative offers) on the scheme. We agree with the Panel that the trustees will be best placed to offer an opinion on the effects of the offer on the pension scheme. A requirement for the target's board to set out its views would be likely to add little to the debate.
  • If the bidder and trustees reach an agreement on the future funding of the scheme, while a summary must be included in the offer document, the agreement will not need to be published on a website (unless it is a material contract of the bidder). We agree with the Panel that this approach is consistent with other agreements entered into by the bidder in connection with the offer.

For more informaiton on the changes proposed, take a look at our earlier alert.


The changes to an extent formalise what in many cases is current practice. However, the benefit they bring is to give trustees a seat at the table in cases where they are currently excluded from takeover discussions until the last minute.

Formal involvement of the trustees at an early stage is, in our view, inevitable and will be welcomed by most. In those rarer hostile situations, the Code may give trustees (and the Pensions Regulator where appropriate) the opportunity to protect the pension scheme before the takeover, rather than trying to salvage the position after the event.

We believe this approach strikes the right balance between shareholder interests (which the Code sets out to protect) and giving the pensions protection regime the breathing space to act to protect schemes if necessary. It also means that bidders cannot give warm and reassuring noises to trustees behind closed doors but then do something completely different before the ink is dry on the deal.