Changes afoot for the employer debt regime and non-associated multi-employer schemes?

The DWP has issued a call for evidence on the operation of the section 75 employer debt regime as it applies to non-associated multi-employer DB pension schemes. The paper highlights the existing easements available to employers in these schemes to help them manage their liabilities and asks for views on three further possible easements. 

4 May 2015

The Department of Work and Pensions (DWP) has issued a Call for Evidence Section 75 Employer Debt in Non-Associated Multi-Employer Defined Benefit Pension Schemes paper seeking views and evidence on the operation of the current section 75 employer debt regime as it applies to non-associated multi-employer schemes (i.e. schemes with multiple unrelated employers), the effectiveness of the easements currently available to such employers and the possible impacts of changes to the regime that have been suggested by stakeholders.

Non-associated multi-employer schemes are popular with charities and have also been used by the Merchant Navy and in the Higher Education sector. In recent years, the employer debt regime has caused issues for those participating in non-associated multi-employer schemes. Some employers have faced significant financial difficulties when they have inherited orphan liabilities in “last man standing” schemes and others have triggered employer debts inadvertently or been preventing from stopping unaffordable benefit accrual due to the risk of triggering a debt. A number of stakeholders have approached the DWP to suggest amendments to the regime and this has prompted the DWP to make a public call for evidence to inform its next steps in this area as it considers ways to reduce employers’ exposure to risk under the regime while also taking into account member protection and the future stability and viability of this type of pension scheme.

The paper highlights three existing easements within the employer debt regime available to non-associated multi-employer schemes: withdrawal arrangements, approved withdrawal arrangements and periods of grace. These mechanisms allow an employer to pass part of its employer debt to another, usually related, entity or to control the timing of the trigger of such a debt. It asks for evidence about how well these work in practice for employers in non-associated multi-employer schemes.

The DWP also seeks views on three further possible easements which might make it easier for employers to manage their pension arrangements and/or protect them from “accidentally” triggering an employer debt when employees leave:

  1. Flexibility around employer debt repayment: The DWP suggests that the regime could be amended to allow greater flexibility in relation to the period over which an employer debt must be paid to a scheme. Repayments could be spread over a number of years to make it more affordable for an employer. Schemes may be able to levy interest and the Pensions Regulator could have a role in approving any debt repayment arrangements agreed.
  2. Ceasing to employ active members no longer a trigger for employer debt: It also suggests that the regime could be amended so that ceasing to employ active members of a scheme when another employer continues to do so no longer triggers a section 75 employer debt. This would allow non-associated employers in a multi-employer scheme to stop benefit accrual without triggering a debt and avoid inadvertent triggers when employees leave. The employer would continue to fund the scheme as it had before and the debt would be triggered at a later date (e.g. scheme wind-up, employer insolvency or, perhaps, a request from the trustees).
  3. Changing the way the employer debt is calculated: Finally, the DWP suggests that the regime could be amended to change the way a debt is calculated once triggered when an employer ceases to employ active members and others(s) continue to do so. For example, an employer could be required to pay their share of the scheme’s liabilities on a technical provisions rather than buy-out basis with the balance to be paid at a later date (e.g. scheme wind-up, employer insolvency or, perhaps, a request from the trustees).  

The consultation runs until 22nd May 2015 and so responses will be considered by the next UK government. It remains to be seen whether any legislative changes will result. Any change would not apply to associated multi-employer schemes such as those operated by and for a corporate group.