The chairman of the Work and Pensions select committee has pressed the government to guarantee The Pensions Regulator (TPR) will have a say on Melrose’s takeover of British engineering company GKN.
Frank Field has written to Greg Clark, the secretary of state for Business, Energy and Industrial Strategy, asking him how the government expected Melrose to meet the regulator's demands over its pension funding proposals.
In particular, Mr Field asked Mr Clark if he expected Melrose to discharge this commitment by making a clearance application to TPR.
He noted the watchdog doesn’t have a "formal role during a takeover process in evaluating and approving pension proposals made by a prospective buyer - or by the company seeking to fend off the bid - except if the proposer voluntarily applies for clearance".
Mr Field asked what the timeframe for clearance would be if Melrose chose to apply.
The government has backed away from its intention of giving the regulator powers to scrutinise takeovers, which was first announced in the Conservative Party manifesto.
Instead, it said in its defined benefit (DB) white paper that it will investigate if the watchdog's current clearance process captures all appropriate transactions.
Melrose, a firm known for buying industrial companies and turning them around, has offered £7.4bn for GKN in an unsolicited bid.
Pensions have emerged as one of the key battlegrounds in the fight over GKN, with the scheme trustees warning Melrose about the pension funds shortfalls.
TPR has said, in a letter to Mr Field, that the proposed takeover of GKN by Melrose was likely to affect the company’s pension schemes.
Mr Field asked Mr Clark what action the government would take if TPR was not satisfied with the pension arrangements put in place.
Mr Clark wrote to Melrose on Monday (26 March), where he said the company should make a number of commitments "which would need to be binding" in the event of a successful bid.
One of these would be "making arrangements for current and future pensioners which are to the satisfaction of trustees and the independent pensions regulator".
GKN has two pension funds - GKN Group Pension Scheme 2012 and GKN Group Pension Scheme 2016 - with more than 32,000 members.
At the end of September, the GKN schemes had an aggregate deficit on a gilts flat basis of £1.1bn, and an aggregate deficit on a solvency basis of £1.9bn.
The gilts flat basis is an indication of the funding position if the GKN schemes were invested entirely in gilt assets, which is a commonly used yardstick in the pensions industry for measuring the potential cost of a pension scheme.
The solvency basis refers to the estimate of the cost of buying out the GKN schemes' liabilities with an insurance company.
In the meantime, Melrose has reached an agreement with GKN trustees to fund its pension schemes up to £1bn.
maria.espadinha@ft.com
