In August 2007, the DWP consulted on proposed changes to the Occupational Pension Schemes (Employer Debt) Regulations 2005 (SI 2005/678 as amended)* which came into force 6 April 2005. This was the subject of an Aries article dated 11 August 2007.

*The amendments were made by SIs 2005/993, 2224, 3377 and 3378, 2006/467 and 558 and 2007/60.

The Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2008 (SI 2008/731) have now been laid before Parliament and they run to 32 pages. They are based on the proposals contained in the consultation and responses thereto and make further extensive amendments with effect from 6 April 2008 (although there are transitional provisions that mean the unamended regulations continue to operate in some circumstances).

Background

The primary legislation covering the employer debt provisions is Section 75 of the Pensions Act 1995 (as modified by PA 2004 s.271). This places a debt on an employer where a scheme has commenced winding-up, the employer has an insolvency event or in the case of a multi-employer scheme, an employer withdraws from the pension scheme. Where such a debt arises, it is calculated by an Actuary on the basis of a full buy-out of the benefits.

The 2005 Regulations make provision for an employer in a multi-employer scheme to not pay the full debt but instead enter into an Approved Withdrawal Arrangement approved by the Pensions Regulator. This allows an amount less than full buy out to be paid provided there is a guarantee up to the full buy out level. In many multi-employer schemes, the debt of the withdrawing employer is apportioned to the remaining employers in accordance with the rules of the scheme.

The employer debt provisions have attracted a lot of criticism from pension schemes and their advisers and these criticisms were picked-up in the De-Regulatory Review report by Chris Lewin and Ed Sweeney. The provisions were also found to be difficult to interpret by the Judge, Warren J, in the case of L v M [2006] EWHC 3395 (ch). More information on this case can be found in the aforementioned Aries article.

The Amending Regulations

The amendments made by the 2008 Regulations make wholesale changes to the 2005 Regulations as they apply to multi-employer schemes. Many of the definitions have been amended so even where the same words are used, the interpretation may be different. For example, the definition of an "employment cessation event" has changed. Whereas, before 6 April 2008, this expression means:

"in relation to an employer if he ceases to be an employer employing persons in the description of employment to which the scheme relates at a time when at least one other person continues to employ such persons."

On or after that date it means:

"in relation to a multi-employer scheme an event which is not a relevant event and which, subject to regulation 6A*, occurs on the date on which -
1. an employer has ceased to employ at least one person who is an active member of the scheme, and
2. at least one other employer who is not a defined contribution employer continues to employ at least one active member of the scheme;"

*6A concerns periods of grace and is covered later in this article.

In addition, the 2008 Regulations provide for a method whereby a scheme shortfall can be more safely apportioned between the employers in a multi-employer scheme in shares which are different to their respective liabilities. Under the unamended 2005 Regulations, the controls on apportionment were thought to be inadequate and capable of abuse (e.g. using apportionment as a method to abandon a scheme).