The draft Occupational Pension Schemes (Employer Debt) (Amendment) Regulations 2017
JANUARY 21, 2020
The Government has after long delay published a response to the consultation on employer debt in relation to non-associated multi-employer pension schemes and in doing so is now consulting on specific proposed change in the law.
The proposal is that, subject to a number of conditions, an employer may, if the Trustees consent, enter into a ‘deferred debt arrangement’ and not trigger a Section 75 debt.
Basically what this would mean is that the employer would remain liable, like other participating employers who still have active members, to pay their share of any deficit recovery payments the Trustees require in order to address a deficit in the ongoing funding position. While they would remain liable potentially for a Section 75 debt this would not trigger at the time they ease accrual.
This change would allow these employers effectively to get in the same position as employers in other scheme where accrual can be discontinued without a winding-up debt being triggered.
The issue relates to where an employer ceases to have any active members in such a defined benefit (DB) DB scheme and a Section 75 debt is currently triggered. This has been a major issue for Pension Schemes, notably those under the Pensions Trust umbrella.
While it is hard to object to the proposal in principle, the issue it poses for our sector is that Section 75 has been a key influence in encouraging these employers to continue with accrual so as to avoid the large and immediate debt as would result if they did not. It could lead to a rush of employers ending DB accrual for our sector members either immediately or at any point in the future where the trustees requested increased contributions for future accrual.
While the consultation document mentions the problem of orphan liabilities (those liabilities relating to employers no longer in existence or against whom the trustees can make no claim) it says these are subject to separate consideration.
We know that a lot of Not for Profit schemes come under the pensions trust and would encourage people to respond to the consultation which runs until 18 May and can be accessed via : https://www.gov.uk/government/consultations/the-draft-occupational-pension-schemes-employer-debt-amendment-regulations-2017
This consultation applies to England, Wales and Scotland. It is anticipated that Northern Ireland will make corresponding regulations.