UK politicians have urged the government to consider rule changes to help small plumbing companies deal with their pension liabilities.
In a debate yesterday, Kirstene Hair, Conservative MP for the Scottish constituency of Angus, highlighted the difficulties faced by small companies that were members of the Plumbing and Mechanical Services Industry Pension Scheme.
She warned that a number of business owners were unable to retire from the multi-employer scheme as to do so would involve shutting down their company and triggering a so-called ‘section 75 debt’.
“Plumbers have been checkmated by the legislation,” Hair said. “They have no room to manoeuvre, no way out. Every possible move, it seems, will trigger the employer debt and bring it crashing down on them and their livelihoods.”
This rule requires companies exiting multi-employer schemes to pay a lump sum upfront to secure their staff’s benefits. Although the defined benefit (DB) scheme was 101% funded, according to a 2014 actuarial valuation, it was roughly 75% funded on a full buyout basis, pensions minister Guy Opperman told MPs during yesterday’s discussion.
Grateful for the opportunity to raise the issue of plumbers pensions in adjournment debate today. Hard working small business owners need support from UK Govt and I hope steps I suggested today will form part of the solution. pic.twitter.com/wzXYL3yId7— Kirstene Hair MP (@Kirstene4Angus) January 11, 2018
In addition, the £1.9bn (€2.1bn) scheme had a significant amount of “orphan liabilities”, Hair said, as a result of employers exiting the scheme before the section 75 rule come into force in 2005. The bill for these liabilities was being paid by current members, she said.
In response to calls from MPs for government intervention, Opperman said some of the issues faced by employers involved in the plumbing industry scheme would be addressed in a forthcoming white paper from the Department for Work and Pensions (DWP). The department consulted specifically on section 75 rules last year.
However, he emphasised that it would be difficult to make changes specifically for the plumbers’ scheme because of the potential implications for other multi-employer DB schemes.
Opperman also said the government did not support making the Pension Protection Fund (PPF) the guarantor of last resort for the scheme’s orphan liabilities.
He said: “The government’s provisional view is that it would not be right or fair to pass this burden on to the PPF and its levy payers, which are, of course, other pension schemes, and their sponsoring employers, who have no connection with, or responsibility to, the scheme.”
The Plumbing and Mechanical Services Industry Pension Scheme plans to consult on a revised method of calculating section 75 debt from next month. Last week the trustees agreed with employers and unions to stop employers from exiting the scheme without explicit consent for the rest of 2018 in order to allow time to “secure a strong and equitable future for the scheme”.
DWP hints at delay to DB reform paper
During the debate about the plumbers’ scheme, Opperman also hinted that the much-anticipated government paper on DB reform could be delayed.
In October last year at an industry conference, Charlotte Clark, director of private pensions and stewardship at the Department for Work and Pensions, said her team was aiming to publish the document by the end of February 2018.
However, Opperman told MPs that “the white paper will be delivered at some stage this spring… it will certainly be delivered before the summer period”.
A DWP spokeswoman told IPE that no firm date had been set for publication.
Clark had said the paper would not lead directly to legislation but instead would aim to set out a “direction of travel” for changes to the DB system.
The first version of the document – titled ‘Security and Sustainability in Defined Benefit Pension Schemes’ – was published last year and explored ideas including alternative liability calculations, funding methods, new powers for regulators and consolidation of schemes.