The DWP has issued for consultation draft regulations, the Occupational Pension Schemes (Employer Debt) (Amendment) and Pension Protection Fund (Multi-employer and Entry Rules) (Amendment) Regulations 2007, which will change the way in which statutory debts are calculated when an employer ceases to participate in a multi-employer occupational pension scheme.
The key proposed changes are: changing the definition of "employment cessation event" so that a debt will arise whenever an employer stops employing active members of the scheme (albeit there will be a 12 month period of grace where an employer expects to employ an active member within that period); introducing five possible bases for apportioning the deficit arising; giving trustees a greater say in the value of assets and liabilities used in the calculations; and giving actuaries greater flexibility in terms of estimating the cost of buying out benefits. The draft regulations will also close a loophole whereby an employer providing DC benefits could become liable for part of any DB deficit. There are various proposed consequential amendments to the current regulations and other pensions legislation.
There are issues with the draft amending regulations, but hopefully most of these can be resolved as part of the consultation exercise. The proposal that debts will arise on employers, even if they all cease to employ active members at the same time, will be of particular concern to scheme sponsors. It could also be argued that there is already sufficient flexibility in the current regulations for apportionments and that these draft regulations simply increase regulation on pension schemes at a time when Government policy is all about de-regulation. That said, the draft regulations provide a useful framework for various types of apportionment arrangements. Corporates involved in or planning transactional or restructuring activity now or in the near future will need to have careful regard to the possible impact of the draft regulations (particularly the numerous calculation bases available). At the same time, trustees must not forget to pay attention to what their scheme rules say should happen when an employer ceases to participate in their scheme.
The closing date for responses to the consultation is 1 October 2007 and it would appear that the DWP intend to implement the new regulations in December 2007.
The consultation can be viewed at: http://www.dwp.gov.uk/publications/dwp/2007/occ-pen-consult/occ-penempdebt.pdf