The DWP is consulting on introducing a new arrangement to allow an employer which ceases to actively participate in a multi-employer pension scheme to defer the obligation to pay an exit debt under the 'section 75' regime.
The draft Occupational Pension Schemes (Employer Debt) (Amendment) Regulations 2017 seek to address concerns expressed by many employers in such schemes – including third sector employers and participants in other industry-wide 'non-associated' schemes such as the Plumbing and Mechanical Services (UK) Industry Pension Scheme – that they are trapped because they cannot afford to depart and pay a 'section 75' debt, nor can they afford to stay in the scheme and continue to accrue liabilities.
Under the regulations, a proposed new type of arrangement (a "Deferred Debt Arrangement") would permit a departing employer that is liable to pay a 'section 75' debt to agree with the scheme's trustees to defer payment of the debt and to continue as an employer in relation to the scheme. The use of a Deferred Debt Arrangement would be subject to various conditions:
- that the departing employer retains all its previous responsibilities to the scheme (including any share of 'orphan liabilities') and "continues to be treated as if they were the employer in relation to that scheme";
- that the scheme will need to meet the funding test applied to other easement measures such as flexible apportionment arrangements ("FAAs"), including that all of the scheme employers (including the deferred employer) will be reasonably likely to be able to fund the scheme going forwards on a technical provisions basis; and
- that the scheme is not in a Pension Protection Fund (PPF) assessment period.
Also, the option of a Deferred Debt Arrangement would not apply where the scheme employers are restructuring.
The draft regulations include situations in which this deferred arrangement could come to an end, including where the deferred employer employs a new active member or an insolvency event occurs in relation to the employer.
A number of commentators argue that the regulations should go further to protect employers, suggesting that, rather than giving trustees a say in whether or not a Deferred Debt Arrangement should be put in place upon an employer departure, the default position should be that a deferred debt arrangement is implemented.
The DWP proposes that the existing options for managing employer debts (such as FAAs) are retained, save for suggesting some minor amendments.
The consultation closes on 18 May 2017 and is available here.
Conservatives promise M&A veto power for The Pensions Regulator
The Prime Minister has pledged that the Pensions Regulator ("TPR") will be awarded new powers to veto some mergers and acquisitions if the Conservatives are re-elected at the upcoming General Election.
In a statement, the Conservatives said that if a merger or acquisition was valued over a certain amount or there was a certain number of members in a pension scheme related to a transaction, an application would have to be made to TPR to approve the deal. TPR could then block the transaction in cases in which "there is no credible plan in place and no willingness to ensure the solvency of the scheme".
The new powers would also include the ability of TPR to fine individuals who have "wilfully left a scheme under-resourced", and to strike off offending company directors.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
