29 Jun 2015
Last week the government announced a £20m pot of funding for charities. This sounds like good news, says...
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Pensions present a hurdle to the possibility of merging, says David Davison, one that could prove too high for some organisations to jump.
With the current market environment it’s not at all surprising that organisations would be looking to find efficiencies, to improve competitiveness as well as scale so I’m sure none of us would see the results of Capacitybuilders research which were supportive of merger and collaboration as too surprising.
What I did find particularly interesting was that only 5 per cent had completed a merger in the last 2 years and 18 per cent had abandoned the merger before completion. I suspect that those in the middle will tend towards abandonment rather than completion if my experience is anything to go by.
Dealing with pension liabilities was cited as one of the main barriers to pursuing a merger. Where organisations participate in different pension schemes the merger of these schemes can be very complex. Where one organisation participates in a final salary arrangement and the other doesn’t why would that organisation want to become jointly responsible for any liabilities? Certain forms of restructure or merger could inadvertently trigger a very significant pension deficit without great care being taken which could stop the organisation immediately in its tracks.
Legislation in this area is complex and not easily navigated and there is an undoubted need for professional support. Properly considering the options and implications will take time and can therefore necessarily delay action. This is also excluding the usual HR issues and staff communication which will need to be addressed.
Future cost savings derived through the merger/re-structure could potentially be eaten up by this process. Early engagement with professionals is essential if such a change is to have any chance of success.
David Davison is a director of Spence & Partners Actuaries and Dalriada Trustees
29 Jun 2015
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