Pensions World

The Regulator’s statement on identifying a scheme’s statutory employer

The Pensions Regulator (TPR) has always stressed to trustees the importance of identifying who has a legal obligation to support the scheme. To reinforce this, TPR has issued a statement which provides information and guidance for trustees on identifying the statutory employer (see Box). From November 2011, trustees must identify their scheme’s statutory employers on the scheme return.

As more schemes close to future defined benefit (DB) accrual, there is increased risk of a scheme being left without any statutory employer, particularly following employer group restructuring or scheme transfers. The government recognises that this has happened in the past and is currently consulting on a limited extension of the Financial Assistance Scheme, but this is not applicable to all schemes. If the employer supporting the scheme does not fit within the relevant statutory definitions, the scheme may not be eligible for entry to the Pension Protection Fund (PPF).

Identifying the statutory employer/s

For ongoing schemes, it will generally be the employer of active members. However, if employers have left the scheme, the trustees may need to consider whether these could still fall within the statutory definition because they did not discharge their liabilities to the scheme on exit. For schemes which are closed to future accrual and therefore have no active members (or anyone eligible to join), identifying the statutory employer may be more complicated. Where all future accrual is on a defined contribution (DC) basis, although there will be a statutory employer for some purposes, it might not be straightforward to identify whether or not there is a statutory employer for s75 purposes.

Trustees may need to seek legal advice and take into account the various amendments to legislation which may have changed the position at relevant times in the past. It can be a complex task to assess what duties applied to different employers in the past and whether any obligations have been discharged in accordance with the legislation as it stood at the relevant time. Trustees may need to undertake extensive investigations and look at various historic documents. They will need cooperation from the current employers and, if this is not forthcoming, should contact TPR.

Outcomes

The identification exercise may reveal that the employers which the trustees had assumed were legally responsible for a multi-employer scheme (and on whom they had based their covenant assessment) may not in fact be statutory employers for the relevant purpose. Or they may discover additional employers which do meet the statutory definition. In this case, they may wish to revisit the assumptions used in setting the scheme’s technical provisions and recovery plan.

The trustees might discover that the statutory employer to their scheme is, or could in the future be, a DC employer (only responsible for DC members) and therefore excluded from the statutory definition relating to s75 debts.

Where the trustees discover that no employer meets the relevant statutory definition, they should discuss the situation with the contributing employer and inform TPR.

They should investigate why and how the situation occurred. If appropriate, TPR will consider using its anti-avoidance powers.

Actions for trustees

Trustees need to ensure that the current position is clear and must look out for situations that might cause a scheme to lose a statutory employer or be without an employer who is responsible for the scheme’s s75 liabilities. They should take appropriate action to prevent such situations from happening and should contact TPR if they are concerned.

If a future employer substitution or bulk transfer takes place, the trustees must ensure that the new employer takes on responsibility for the DB scheme liabilities as a statutory employer (and not only a DC employer) and ensure that any detrimental effect is adequately mitigated.