Two external reviewers, Chris Lewin and Ed Sweeney, have produced a report for the DWP. This report looks at possible changes to the regulatory framework for occupational pension schemes.
One of the key recommendations was to change the circumstances in which an employer leaving a multi-employer scheme has to make a payment in respect of its share of any scheme deficit. It was considered that significant changes are needed in relation to the application of section 75 of the Pensions Act 1995 to multi-employer schemes and that under the present regulations a debt arises in many situations where it is unnecessary. For example, when the last active member employed by a participating employer ceases active membership, it has been suggested that there should be a "period of grace" of up to one year before any debt is triggered, and if the employer takes on a new active member in that period the debt should not be triggered. This suggestion has been included in new draft regulations (see the legislation update below).
In addition, where there is a group reconstruction of employers in a multi-employer scheme, the principle should be established that the debt should not be triggered where the original covenant was strong and if the remaining employers' covenant remains as strong, following the reconstruction, as the original covenant. The judgement as to whether the covenant remains intact should be the responsibility of the trustees, after taking appropriate advice. Lewin recommends that where the original covenant is potentially weak, provided it remains unchanged after the reconstruction, the debt should still not be triggered.
Further recommendations in the report for changes to the current legislation are:
- changes to the current provisions in section 37 of the Pensions Act 1995 to allow a return of surplus to employers once the scheme has reached the scheme specific funding target, and the trustees agree at that time that such a payment should be made;
- a move towards less detailed and prescriptive legislation, starting with simpler rules on what trustees must tell members; and
- concentrating the requirement for trustee expertise at board level rather than on individual trustees.
View the report (PDF 261.34 KB)