The Government is currently seeking views on draft regulations which propose changes to employer debt legislation under the existing Occupational Pension Schemes (Employer Debt) Regulations 2005.
This consultation is being carried out as a response to a Call for Evidence in March 2015 that looked at the employer debt regime for employers in non-associated defined benefit multi-employer pensions schemes. These are schemes where participating employers are from unconnected businesses or organisations, such as the Social Housing Pension Scheme.
As a result of the responses received from the Call for Evidence, the Government is proposing to introduce a new deferred debt arrangement which would allow employers participating in multi-employer pension schemes to defer payment of an employer debt on ceasing to employ any active members.
The ability to enter into a deferred debt arrangement will depend on certain conditions being met, as follows:
- The employer retains all their previous responsibilities to the scheme and continues to be treated as if they were the employer in relation to that scheme. As such they will still remain responsible for their share of what are known as ‘orphan liabilities’ (liabilities remaining in the scheme that were accrued by members of employers that have since left the scheme).
- After the time the arrangement takes effect the scheme will have sufficient and appropriate assets to cover its technical provisions and the arrangement will not adversely affect the security of members’ benefits.
- As a precondition for a deferred debt arrangement it is proposed that a funding test will need to be satisfied.
- The trustees of the scheme must give their consent to the deferred debt arrangement in writing based on their satisfaction that the arrangement would not be detrimental to the scheme or its members.
- The scheme must not be in a Pension Protection Fund assessment period or likely to start such a period in the following 12 months.
- The deferred debt arrangement will not be open to employers who are restructuring.
- The deferred debt arrangement will be open to employers who are already in a period of grace arrangement.
Whilst a deferred debt arrangement will enable participating employers to defer payment of their employer debt, an important point to note is that an employer who has entered into a deferred debt arrangement is still an employer for scheme funding purposes. This means that employers may be required to make deficit recovery payments if an actuarial valuation of the scheme identifies a shortfall.
It is proposed that such deferred debt arrangements would come to an end, and an employer debt could become payable, in a number of circumstances. These include the deferred employer becoming insolvent or restructuring, the employer choosing to trigger the section 75 debt and pay it, or the deferred employer subsequently employing an active member of the scheme.
The consultation period began on 21 April 2017 and is open until 18 May 2017. The Government’s consultation document together with the draft regulations can be found at the following link: Deferred Debt Consultation.
If you require assistance with any pension issues please contact the Devonshires Employment Team.