Asset-backed contributions – the options for overseas groups with UK operations

The UK asset-backed contributions (ABC) market has matured over the last few years. This maturity in the market has led to a number of overseas groups with operations in the UK showing an interest in whether ABCs would work for them. But what are the challenges that could prevent you making the most of ABCs?

Many US-headquartered groups have significant UK legacy pension deficits. In addition, these US groups often have cash trapped in the UK which they can’t access due to operational or tax issues – a situation which may make ABCs a problematic option. However, the UK pension schemes are increasingly looking to their US parent to stand behind the promise to the pension scheme while, at the same time, the parent may be reluctant to give a direct guarantee of funding.

So, what can you do if you find yourself in this position? One option is to use a receivable from the US parent as an ABC. This can be an efficient way to give the trustees access to the parent’s balance sheet without giving a guarantee. The UK subsidiary lends the cash to the US parent and provides the loan to the pension scheme in the form of an ABC. The interest on the loan is paid by the US parent and the loan gives the pension scheme a recoverable debt from the parent on insolvency. 

This is a potentially efficient solution for a knotty problem and it’s opened a new area for ABCs which can help many overseas groups with UK operations. And we think it will work for most jurisdictions, not just the US.

Alex Henderson is a partner in our Tax practice. If you want to find out more about the strategic options available for UK pension schemes with overseas parent operations, you can contact him on +44 (0) 20 780 46370 or by email at [email protected].

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