Further to our previous MacRoberts Pensions and Employee Benefits e-update, dated 10 October 2011, we can confirm that the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2011 ("the Amendment Regulations") are finally due to come into force tomorrow, 27 January 2012.
The Amendment Regulations provide various reliefs for employers who are faced with an employment cessation event and employer debt.
As a recap, where a participating employer departs from a multi-employer defined benefit scheme with active members, in terms of Section 75 Pensions Act 1995 and the Occupational Pension Scheme (Employer Debt) Regulations 2005 (the "Employer Debt Regulations"), an employment-cessation event will normally occur. This is because the departing employer will cease to employ active members in circumstances where remaining employers continue to employ active members.
Where the assets of the scheme are less than its liabilities calculated on a buy-out basis, the occurrence of an employment-cessation event triggers an obligation on a departing employer to pay a Section 75 debt to a scheme's trustees.
The Amendment Regulations introduce a Flexible Apportionment Arrangement ("FAA") which is designed to provide increased flexibility for employers involved in corporate restructurings. With the introduction of FAA's scheme, liabilities would be reapportioned to one or more of the employers remaining in a pension scheme. A continuing employer is able to take the place of the exiting employer, therefore preventing the occurrence of a Section 75 debt.
The Department of Work and Pensions ("DWP") has also confirmed that the Amendment Regulations now contain provisions for the "period of grace" to be extended. Where an employer ceases to employ an active member and such cessation was intended to be only temporary, the "period of grace" rule currently means that the employer debt does not trigger for 12 months, giving the employer time to employ an active member of the scheme. The trustees of the pension scheme will have the discretion to extend the period of grace from 12 months to a maximum of 36 months.
To rely upon the "period of grace" provisions, an employer is required to communicate to the trustees that it no longer employs active members of the scheme within a specific notification period. Under the Amendment Regulations, this notification period is to be extended from 1 month to 2 months.
Finally, the reach of FAA's has also been extended so that they can be used in certain "frozen" schemes as well as in active schemes. A frozen scheme is one in which all accrual has ceased (i.e. the scheme no longer has active members).
The amendments should be widely welcomed by many employers as they are designed to provide greater flexibility in situations of corporate restructuring. MacRoberts Pensions & Employee Benefits Group are dealing with "corporate restructures", "apportionment arrangements" and "withdrawal arrangements" on a regular basis. If an Employer or a Trustee becomes aware of any of the issues raised above, we advise you to seek appropriate advice.
The DWP formal response to the consultations can be found here.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.