UK: UK Pensions – Consultation On Further Amendments To Debt Regulations

Last Updated: 24 September 2009
Article by Sheena McCaffrey


Under Section 75 of the United Kingdom Pensions Act 1995, termination of participation in a defined benefit pension plan gives rise to a debt due from the seceeding employer if the plan assets at the relevant time are insufficient to fully secure on a "buyout" basis member liabilities attributable to that employer. Last year the Government agreed to explore the possibility of changes to the legislation so as to provide that s75 debts are not triggered when an intra-group re-organisation takes place.

On 17 September the Government issued draft legislation to amend s75. As well as drafting clarifications, two "easements" are proposed which, if adopted, will mean that no s75 debt is triggered on an intra-group re-organisation provided specified conditions are met. These proposals are now the subject of consultation until 19 November 2009.


"Restructuring Easement"

Where a corporate restructuring is taking place a s75 debt will not arise if:

1. Another employer (the "receiving employer") in the group agrees to be responsible for the "exiting" employer‟s obligations to the pension plan;

2. The plan trustees are satisfied that the receiving employer is at least as likely to be able to meet the liabilities which it is assuming as the exiting employer (i.e. the receiving employers‟ financial strength must not be worse than that of the exiting employer) and that the assumption of the exiting employer liabilities will not impair the receiving employer‟s ability to meet its own obligations to the pension plan;

3. The receiving employer must have its "head office" in the United Kingdom;

4. Both the exiting and receiving employer must at the time of the re-organisation each have at least one active plan member;

5. Each of the exiting and receiving employer must decide whether they are satisfied‟ that no insolvency event‟ has occurred and would be [un]likely to occur in the following 12 months if a restructuring does occur‟ in respect of itself; and

6. The receiving employer assumes under a legally binding‟ agreement responsibility for all of the exiting employee‟s assets which it is legally able to hand over‟, the exiting employer‟s employees, plan members of the exiting employer and all plan liabilities (including attributable or orphan liabilities) of the exiting employer.

Once the trustees have agreed to the restructuring proposal they are required to notify the Pensions Regulator.

Any intra group re-organisation must be carried out within 12 weeks of a formal decision by the trustees that they are satisfied that the restructuring test‟ has been met and provided they are also satisfied that nothing has happened which may cause them to change their decision.

If the plan trustees are not satisfied that the "restructuring test" has been met, then when the "exiting" employer ceases to participate a s75 debt will still arise.

The Department for Work and Pensions is seeking views on whether it would be appropriate to allow for a group reorganization to involve more than one employer to employer transfer at any one time.

"De Minimis Easement"

The de minimis easement is intended to apply a "de minimis" exception so that a s75 debt is not triggered on the withdrawal of an employer with relatively small liabilities.

The applicable conditions are:

1. The assets of the pension plan must be at least equal to the Pension Protection Fund (PPF) protected liabilities; i.e. this easement cannot be used if the plan as a whole does not have sufficient assets to fully secure liabilities equal to those covered by the PPF on a "buy-out" basis.

2. The number of scheme members of the employer concerned must be under 2% of the total number of scheme members. (Scheme members for this purpose are active, deferred and pensioner members).

3. The PPF liabilities relating to the "exiting" employer must be no more than Ł100,000.

4. In a rolling three year period no more than 5% of the scheme members as a whole can be included in the de minimis easement.

As with the restructuring easement the exiting and receiving employers must provide the plan trustees with what is in effect a declaration of solvency and the trustees have to be satisfied that the conditions have been met. If all these conditions are met, then no debt is triggered on the withdrawal of the exiting employer.


While the Government‟s attempt to provide for some further "easing" of the debt regulations to allow for sensible corporate restructuring is to be welcomed, we wonder if in practice the proposals will aid employers to the degree that the Government suggests. The de minimis "easement" will only be available in a limited number of cases, and the general corporate restructuring provisions do not necessarily achieve much more than the existing arrangements under which employers may agree apportionment and withdrawal arrangements (see our previous email alert of March 27, 2008).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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