Pensions World

Helen-Mary Finney, Aon Hewitt, explains the amended regulations on employer debts in multi-employer pension schemes

Corporate restructuring can be inhibited by the rules which operate when an employer leaves a multi-employer defined benefit pension scheme.

In April 2010, easements were introduced to the employer debt regulations, to help participating employers manage debts that arise under s75 of the Pensions Act 1995, although these only helped in limited circumstances. In June 2011, the Department for Work and Pensions consulted on extending the flexibility available, in a further attempt to assist such employers. A number of suggestions were made in response to the consultation and many of these have been accepted. The amending regulations came into force on 27 January. 

Flexible apportionment arrangements

The main feature of the amending regulations is the introduction of flexible apportionment arrangements which allow an employer which has had a cessation event in a multi-employer scheme (Employer A) to have its liabilities in relation to the scheme reapportioned to one or more of the remaining scheme employers (see Box). Employer A does not have to pay a debt to the scheme; instead the employer(s) to whom the liabilities are apportioned take responsibility for those liabilities. Flexible apportionment arrangements are to exist alongside scheme apportionment arrangements, rather than replace them.

A flexible apportionment arrangement can be entered into even if the cessation event occurred before 27 January 2012 (although the policy intention is that the debt should have been triggered relatively recently) and must be notified to the Pensions Regulator (which intends to update its guidance – Multi-employer schemes and employer departures – to include material on the new arrangement).

Such an arrangement avoids the need for a certification of the deficit or Employer A’s share of the debt on that occasion. However, Employer A could arrange to pay part of a debt, which would then reduce the liability on the other employers taking on the responsibility. Following responses to the consultation, the arrangement can be used in certain frozen schemes.

Periods of grace

Further flexibility has been introduced for periods of grace (where an employer has ceased to employ an active member but proposes that a debt is not triggered). Trustees have discretion to extend the period of grace from the current 12 months up to 36 months.

Employers have two months, rather than one, to make the necessary notification to the trustees. An employer in a period of grace is still liable for making payments to fund the scheme.

Other technical changes

The amending regulations make several minor technical changes, although some of the proposed amendments have been shelved
(as well as those suggested in earlier consultations).