Like many businesses we’ve had our fair share of disruption due to Iceland’s volcanic eruption. I was nearly stuck in Paris (would it have been so bad to have to work out of our Paris office for a week?) and a colleague was stranded for over a week in LA and Seattle.
But it’s not only pension lawyers who have been having problems with overseas travel, it’s pension schemes as well. We’ve all heard about IORPS (more trouble than they’re worth if you ask me, but that’s another blogpost) but I’ve recently had a couple of clients thinking about merging their UK registered pension scheme into an overseas parent’s scheme (both schemes provided defined benefits).
Iceland's volcanoes - disrupting air travel since 2010
Companies can have many sensible business reasons for wanting to rationalise their worldwide pension plans but unfortunately any attempt to merge a UK scheme into an overseas scheme would face huge obstacles. Obviously you would have to consider the law in the other jurisdiction as well (for example I now know that, in the USA, the ERISA legislation prohibits members from exchanging pension for cash without their spouse’s consent – even if the member is UK resident) but there are enough UK problems to knock the idea on the head.
Loss of PPF entry, loss of Regulator support (and immediate Regulator scrutiny), tax, contracted-out benefits, member consent and trustees’ fiduciary duties are just some of the issues that can block such mergers at the first hurdle. In fact, an initial discussion of these has been enough for clients to say “thanks, but no thanks”. The mergers I looked at involved moving UK members and their accrued benefits outside of the EEA but, if a merger was within the EEA, the receiving scheme would have to think about cross-border issues.
I strongly doubt that this is a complete list, so feel free to post any further ideas or thoughts that you may have. I may be proved wrong, but I think it would take a seismic shift to make these kinds of international mergers work.
Chris Jackson is a senior associate at Allen & Overy LLP.
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