The Department for Work and Pensions (DWP) has published a consultation document (Employer Debt – (Section 75 of the Pensions Act 1995) Consultation on draft regulations) setting out its proposals for simplifying the employer debt regime.

The DWP proposes to implement a new, additional arrangement – to be called a ‘flexible apportionment arrangement’ (FAA) - in addition to the existing forms of the apportionment arrangements. The aim is to allow for greater corporate freedom from having to make an immediate payment into the scheme.

The FAA, if adopted in its current form, would apply from 1 October 2011. It would specifically allow for employer pension liabilities to be reallocated to employers remaining in the scheme. This means that the outgoing employer would not be required to pay the employer debt when it ceases to participate in an ongoing multi-employer defined-benefits scheme. In our view, this can already be achieved under the existing scheme apportionment arrangement (SAA) provisions in the Debt Regulations, but these are not as clear as they could be on this so the new express provision is (broadly) to be welcomed.

In order to safeguard the scheme, the draft regulations also propose some (rather complex) provisions, namely that:

  • The arrangement be subject to the trustees consenting;
  • The scheme must not be likely to fall into a PPF assessment period within 12 months; and
  • No part of the debt should already have been paid.

The DWP is seeking views on whether these proposals would both alleviate concerns about the effect of current employer debt provisions on corporate transactions, and adequately safeguard members’ benefits.

In addition, it is also proposed that the notice period and maximum time for the ‘period of grace’ for posting an employer debt if a cessation of employing an active member in a scheme is only temporary, be extended. Currently, there is a 12 month period of grace – the proposals suggest that the trustees be given a discretion to extend this to up to 36 months.

The consultation closes on 10 August.