Commentary on Sections Deficiency in assets of certain occupational pension schemes Section 272: Debt due from the employer in the case of multi-employer schemes
1073.This section introduces a new provision which enables section 75 of the Pensions Act 1995 (deficiencies of assets) to be modified in order to provide flexibility in calculating the section 75 debt when a participating employer withdraws from a multi-employer scheme. The detail of this provision will be set out in regulations.
1074.In tandem with sections 43 to 47 of this Act, this section is designed to avoid situations where, whether by chance or design, withdrawal from multi-employer arrangements leaves pension liabilities situated in a company which is substantially weaker than other companies with which it is associated. Such a situation increases the risk that the scheme could wind up without having the funds to pay members their benefits. This could mean significant liabilities were passed on to the Pension Protection Fund or that certain members had their benefits cut back.
1075.Subsection (2) provides that regulations may in particular provide for the circumstances in which a debt is to be treated as due under section 75 from an employer in relation to a multi-employer scheme.
1076.Subsection (3) provides that a section 75 debt may be treated as due in relation to a multi-employer scheme in circumstances other than those in which the scheme is being wound up or a relevant event occurs (as defined in section 75). For example, in multi-employer schemes, debts can be triggered on the withdrawal of an individual employer from the scheme at a time when other employers remain.
1077.Subsection (4) provides that for the purpose of multi-employer schemes regulations may prescribe alternative manners for determining, calculating and verifying the liabilities and assets of a scheme and their amount or value.
1078.Subsection (5)(a) provides that regulations may allow an alternative manner of valuation to be used if certain requirements are met. Subsection (5)(b) provides that regulations may give the Regulator power to direct that a section 75 debt which has been calculated using an alternative manner, is unenforceable for a specified period and that the debt should be recalculated applying a different manner if certain requirements are met within that period. Employers will be permitted to seek approval of arrangements after the date on which the event triggering the debt has occurred. Where the Regulator approves a particular arrangement, a new basis for calculating the debt can be substituted. This alternative basis will, in most cases, be the scheme’s ongoing funding basis in accordance with Part 3 of this Act.
1079.Subsection (6) provides that the requirements mentioned in subsection (5) may include a requirement that a prescribed arrangement is in place which is approved by the Regulator.
1080.The amount of a debt on a withdrawal of an employer from a multi-employer scheme will usually be calculated on a full buy-out basis. Regulations made under this power will allow an alternative (usually lower) basis for calculation to the full buy-out basis to be adopted where approved arrangements are entered into with a view to ensuring that the scheme is supported in the future. The regulations will provide that in the case of all approved arrangements (other than transfers of benefits out of the scheme) the debt will be recalculated on the scheme’s ongoing funding basis adopted in accordance with Part 3 of this Act. The regulations will provide that any liabilities actually transferred out of the scheme should be excluded from the debt calculation. The approved arrangements will be very similar to those set out in section 45(2) (meaning of financial support).
1081.Subsection (7) sets out that regulations may provide that the Regulator may not approve the details of such an arrangement unless certain conditions are met. These conditions may include a requirement that the arrangements identify persons against whom the Regulator may issue a contribution notice. The Regulator may also have to be satisfied of prescribed matters in relation to such persons. This will include that the consent of a person must be obtained before the person can be identified in this way.
1082.Subsection (9) provides that a “contribution notice” imposes a liability upon the person to whom it is issued to pay the sum specified in the notice to the trustees of the multi-employer scheme or, where the Board of the Pension Protection Fund has assumed responsibility for the scheme, to the Board. Subsection (10) provides that a contribution notice may be issued if an arrangement ceases to be in place or the Regulator considers that it is no longer appropriate. The Regulator must also be of the opinion that it is reasonable to impose liability on the person to pay the sum specified in the notice. Subsection (11) provides that any sum specified in a contribution notice is to be treated as a debt due from the person to whom it is issued. The debt will be owed to the person named in the notice.
1083.Subsection (12)(a) provides that regulations must provide for how the sum specified in the contribution notice is to be determined, provide for circumstances in which joint and several liability for the debt can be applied, provide for the matters which the notice must contain, and provide for who may exercise the powers to recover the debt due. Subsection (12)(b) provides that the regulations may apply with or without modifications any of the provisions of sections 47 to 51 (financial support directions) of this Act in relation to contribution notices issued under the regulations.
1084.Subsection (13) defines “multi-employer scheme” as a trust scheme which applies to earners in employments under different employers. Subsection (14) provides that this section operates without prejudice to the powers conferred by sections 75(5), 75(10), 118(1)(a) and 125(3) of the Pensions Act 1995.