In any share purchase it is important for the buyer to understand the nature of the target’s pension liabilities.
This is particularly important where the target company operates a defined benefit pension plan or a trust-based occupational pension plan.

The buyer should establish the nature of target company’s pension arrangements.
Most commonly the pension arrangements will consist of one or more group personal pension schemes or master trust plans.
In more complex scenarios pension arrangements might comprise an occupational trust-based scheme which may be defined benefit or defined contribution in nature.
It is also common to come across individual pension arrangements for directors of the target such as self-invested personal pension plans (SIPPs) or a small self-administered scheme (SSASs) which will require special consideration.

All UK employers are required to automatically enrol employees into a qualifying pension scheme under the automatic enrolment legislation.
The buyer should establish that the target has taken all necessary steps to comply with its auto-enrolment obligations.
More generally the buyer will also wish to confirm that the target and the pension scheme are in compliance with all other requirements of pensions law, for example, paying contributions on time.

A key focus of pension diligence will be the existence of any defined benefit schemes.
Most defined benefit pension schemes are in significant deficit and the buyer will wish to ascertain the level of funding deficit, for example, by seeing the scheme’s latest actuarial valuation.
The compliance of the pension scheme with rules on equal treatment, equal access and civil partners will also have to be established
Any discrepancies between the scheme’s deed and rules and booklets and announcements should be identified.
If the target company will cease to participate in the pension scheme on completion this will normally trigger a statutory debt on the participating employer.
The buyer should obtain actuarial advice on the potential size of the statutory debt
The target company and the buyer's group need to consider what withdrawal arrangements would be appropriate and the size of the debt may be a consideration when determining purchase price.

The buyer should consider whether the sale could be detrimental to a defined benefit pension scheme and result in action by the Pensions Regulator.
The Pension Regulator has extensive powers in these circumstances including the power to impose a financial support direction or a contribution notice.
Advance clearance is available from the Pensions Regulator where there is a concern that its powers may be triggered by a transaction.

The target company may have liability for early retirement or redundancy pensions as a result of a prior TUPE transfer.
These are commonly referred to as "Beckmann" liabilities.
Suitable questions should be asked and documentation reviewed to confirm the position.

The buyer will wish to know about any disputes, whistleblowing reports or notifiable events to the Pensions Regulator relating to the target’s pension schemes.

The buyer will wish to confirm the target company’s liability to pay contributions to the scheme and that all contributions due have been paid in full and on time.

The buyer should consider what pension benefits to provide for future service.
This should include any steps it needs to take to comply with the auto-enrolment regime.

Suitable warranty and potentially indemnity protection should be sought in relation to pension liabilities and any particular issues arising as a result of the pensions due diligence.