In August of this year, the Department of Work and Pensions (“DWP”) published draft regulations amending the Occupational Pension Schemes (Employer Debt) Regulations 2005.

The proposed changes envisage there being five ways of apportioning the statutory debt that is triggered when an employer ceases to participate in a defined benefit pension scheme which is in deficit on a buy-out basis.

The main issue relates to a proposed amendment to the definition of “employer cessation event” for multi-employer schemes. As originally drafted, if all employers ceased to employ active members in a scheme simultaneously, a statutory debt would have been triggered regardless of whether the employers continued to fund the scheme. This would have had serious consequences for companies contemplating scheme mergers or intending to freeze their schemes by terminating future accrual.

Fortunately, the DWP has recognised the problem and said that this drafting will be revised. The intention is to prevent companies from leaving a scheme without any real means of funding and not to curb legitimate activities such as scheme mergers.

Consultation on the draft regulations ended on 1 October 2007