This decision will be of interest to all employers providing defined benefits. The Pensions Ombudsman (PO) has determined that the pension scheme’s trustees had no duty to warn the scheme sponsor of its potential employer debt obligation and were not responsible for liability on the employer arising from an employment-cessation event.
The Baptist Union of Great Britain (the Union) and the trustees of the Baptist Ministers' Pension Fund (theTrustees) had no duty to warn a church of its potential employer debt obligation and were not responsible for the liability on the church arising from an employment-cessation event.
The employer debt is triggered where an employment-cessation event occurs. An employment-cessation event is deemed to occur on the date when an employer no longer employs at least one person who is an active member of the scheme, if at least one other participating employer in the same scheme is continuing to employ at least one active member.
The PO dismissed a complaint by a Baptist church which, in 2007, appointed a part-time minister who resigned 11 months later, leaving the church with no active members in the scheme, which is an employment-cessation event for the purposes of the employer debt legislation.
The PO held that in treating the church as an employer for employer debt purposes, the Trustees had correctly interpreted the relevant legislation in the light of the 2010 High Court judgment in the Pilots case, following which they had received legal advice that each church was its minister’s “employer” in relation to the scheme. However, the Trustees had reached an agreement with the Pensions Regulator (TPR) and the Pension Protection Fund where “genuine” and “non-genuine” employment-cessation events were distinguished and the church could be offered the alternative of paying deficiency contributions in some situations. One such situation was where a church might participate in respect of a future minister, and the Trustees were satisfied about the arrangements to pay shortfall contributions in relation to the leaving minister. The PO found that the Trustees had provided a “pragmatic solution”.
In reaching his decision, the PO took into account that:
- the minister's decision to join the scheme was outside the church's control;
- neither the Union nor the Trustees had any duty to warn the church what its employer debt obligations were, and that those obligations were legally uncertain before the 2010 Pilots judgment; and
- neither respondent was responsible for the liability that arose on the church.
PO determinations covering the employer debt regime are rare. Trustees will be relieved that the PO found that they are not obliged to warn employers about the potentially adverse consequences of the section 75 minefield. The determination also highlights the scope for trustees to adopt a flexible approach to resolving employer debt questions and suggests that in the right circumstances TPR will refrain from challenging such an approach.
View the determination.