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UK proposes flexibility on employer debt rules

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UK - Rules on how companies pay money into their pension schemes when they restructure may change under government proposals announced yesterday.

The Department of Work and Pensions announced plans to change the existing Employer Debt (Section 75) rules, saying they would be more straightforward and offered flexibility for employers and protection for employees.

The proposals, which follow an informal consultation started last year, would mean that under certain conditions employers in "well-run multiple employer schemes" no longer had to meet a debt if they were planning to restructure, the department said in a statement.

However, the changes would not apply where a multi-employer scheme was wound up or where the employer became insolvent. In these cases, the existing employer debt rules would continue to protect pension scheme members, it said.

As well as this, other technical amendments are proposed in an attempt to make the Section 75 regulations work better in practice.

Minister for Pensions Angela Eagle said the government wanted to help legitimate business activity without undermining protection of employees' pensions.  

"We need to get the balance between flexibility for employers and protection for employees, which is why we have been discussing our proposals with a range of interested parties, including the TUC and the CBI," she said.

"We estimate our main proposal could help up to 50 per cent of corporate restructurings.  I look forward to seeing the market response to this consultation."

The National Association of Pension Funds was not immediately able to comment on the complex proposals.

On the employers' side, Neil Carberry, head of pensions policy at the CBI said the organization had been campaigning for reform of section 75.

"Pensions law is currently quite obstructive for companies when they try to react to a recession by restructuring their businesses, even where there is no change to the security of employees' pensions," he said. "While maintaining adequate safeguards is important, we would like the government to go further than the proposals it has set out. Nevertheless, they represent a clear step in the right direction".

Stuart O'Brien, an associate at Sacker & Partners LLP, welcomed the proposed easing, but expressed concern that the new plan could make for too much red tape. "I can't help wondering whether adding an extra and highly prescriptive layer on top of an already complicated piece of legislation is really the best approach," he said.

"The suggested new provisions have numerous hoops to jump through and not all reorganisations will make it through.
In fact the ability for one employer to assume the underlying pension liabilities attributable to another employer on reorganisations was already largely there in the existing regulations in the guise of scheme apportionment arrangements.

"However, instead of building on that mechanism (and ironing out some of the wrinkles), the proposed amendments now seek to prevent scheme apportionment arrangements from being used to reallocate underlying liabilities in this way," said O'Brien.

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