leaving
multi-employer pension schemes – new regulations
by
Roderick Ramage, solicitor, www.law-office.co.uk
first
published (by distribution to professional contacts) on 2 September 2005
NB This has been superseded
by article 25.
DISCLAIMER
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does not accept any responsibility for
anything that any person does or does not do as a result of reading it.
When two or more
companies participate in a pension scheme and one of them leaves the scheme and
the scheme is in deficit, that company becomes liable for a debt on the
employer under s75 of the Pensions Act 1995.
The effect of the Occupational Pension Schemes (Employer Debt)
Regulations 2005, SI 2005/678 (in force on 6 April 2005) as amended by SI
2005/2224 is that the amount of the debt is calculated as the cost of buying
annuities as estimated by the scheme’s actuary instead of on the MFR
basis. Although this applies primarily
to final salary schemes, money purchase scheme too can have a debt, if there is
a deficit because of the Pension Protection Fund levy or what the regulations
call a “criminal deficit”.
The trigger for the
liability has not changed, but is now called an “employment cessation
event”. The key point is that the
liability arises not on (eg) the disposal of the employer but on the employer
ceasing to employ persons of the description of employment to which the scheme
relates. Here are four examples showing
how and when the debt can arise.
-
A
debt will be triggered if an employer is reconstructed in such a way that it
ceases to employ any persons who belong to are or eligible to belong to the
scheme.
-
If
the employer is sold and pension scheme membership for its employees ceases on
completion, the liability will crystallise at completion.
-
The
liability can arise after completion if the target company continues to
participate in the scheme for a period: this, often called an interim period,
can be until the next renewal date plus a further 12 months.
-
On
an assets sale, if it is arranged for the buyer to participate in the scheme
for an interim period, the buyer will become liable for the debt on ceasing to
participate at the end of the interim period.
The debt attributable to
the leaving employer will be its proportion of the debt for the scheme as a
whole based on the amount of its liabilities in relation to the total
liabilities.
The amending
regulations provide that if, on an employment cessation event on or after 2
September 2005, a “withdrawal arrangement” has been approved by Pensions
Regulator and the agreement has guarantors for the debt, the leaving employer’s
debt may be calculated on the MFR basis, and that the Pensions Regulator may
issue a direction deferring the payment of the balance of the debt for such
period as is specified, not later than the winding up of the scheme or the last
participating employer ceasing to be an employer or
becoming insolvent.
02/09/05
copyright Roderick Ramage
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