From October 2021 the pensions regulator will assume enhanced powers whereby it can punish bad behaviour and bring forward criminal proceedings.

Legal experts Norton Rose Fulbright believe that the new powers give pension trustees a formal role in takeovers and arguably some leverage, and the pension trustees could have a role to play in the bid battle for supermarket Morrisons (MRW).

The pension regulator has been steadily given more powers since the collapse of retailer BHS which was sold by Sir Philip Green without any provision for its £571 million pension deficit.

After many years of wrangling in 2018 Green agreed to pay £363 million to rescue the pension scheme after a parliamentary investigation that found BHS’s assets had been ‘systematically plundered’ by its owners.

The pension regulator rarely gets directly involved but in 2018 it took it upon itself to act as overseer when engineering company GKN was taken over by Melrose Industries (MRO).

Its involvement resulted in Melrose agreeing to make a £1 billion cash contribution to fully fund GKN’s two pension schemes. It was also reportedly required to pay a one-off contribution of £100 million when Melrose sold Nortek Air Management.

The current tug of war for supermarket Morrisons has seen rival private equity bidders initiate a dialogue with the company’s pension trustees in advance of any deals being recommended by the board.

However, the trustees have upped the stakes by voicing their concerns that debts taken on to fund the takeover would ‘materially weaken’ the security of the pension schemes.

Their worry is that operational cash flows available for the scheme’s pensioners would instead be used to service extra debts. Although Morrison’s schemes are in surplus for accounting purposes, the value of its assets minus liabilities is not sufficient to purchase annuities for the 85,000 members.

The current vision is to reach that point over the next decade, but the trustees don’t want to jeopardise the plan and are therefore seeking assurances in the form of a mitigation plan from the bidders.

Stronger powers and incentives for pension trustees to proactively defend their members’ rights might offer some protection for the UK’s largest firms to opportunistic takeovers.

Take telecoms firm, BT (BT.) whose shares are down over 75% in the last five years. The shares might look optically cheap to potential buyers, trading around eight times forecast earnings.

However, the company has the largest pension fund in the UK and a deficit close to £10 billion. The company has pledged to pay £900 million a year until 2030 to plug the hole, creating a serious hurdle for potential bidders.

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