There have been several changes since the draft Amending Regulations were published last Autumn.

Changes affecting both the general and de minimis easements:

  • The easements still apply only to one-to-one transactions but there is no limit on the number of such transactions that may be carried out under the general easement process.
  • The provision that all parts of the transaction must be completed on the same date has been removed. The individual elements of the transaction must take place within the stipulated period but they may be concluded on different dates.
  • The period within which the receiving employer is required to take on responsibility for assets, liabilities and employees has been increased from 12 to 18 weeks. This period may be extended by up to a further 18 weeks at the discretion of the trustees.
  • The requirement in the consultation paper that the receiving employer has its head office in the UK has been dropped.
  • Either easement can be unravelled, and a Section 75 Debt applied, if it becomes apparent within 6 years of the restructuring that there has been non-compliance with key aspect of the process.
  • The requirement in the consultation paper for both employers to confirm that no insolvency event had occurred, nor would be likely to occur, within 12 months of the restructuring decision, has been removed.
  • Orphan liabilities should be included in the relevant calculations.
  • The Amending Regulations allow for the trustees to decide that their costs should be met by the exiting or receiving employer, or both.

Changes affecting the general easement only:

  • An employment-cessation event will occur, and a Section 75 Debt will arise, where it becomes apparent that the employer provided incomplete or incorrect information to the trustees, which materially affected the trustees’ decision in relation to the restructuring test.
  • The restructuring test requires the trustees to assess the effect of the transaction on the employer’s covenant.
  • There is no longer a requirement for trustees to seek formal advice, although their general duty to seek professional advice if appropriate still exists.
  • The Pensions Regulator no longer requires a copy of the written decision to proceed with the easement and formal clearance is not appropriate, according to the DWP.

Changes affecting the de minimis easement only:

  • Service with the exiting employer must have been accrued by no more than 2 members or 3 per cent of membership, whichever is greater.
  • The total of accrued pension of the members involved in the transaction must not exceed £20,00 (increased by £500 each year).
  • A cap of five members, or 7.5 per cent of scheme members, whichever is larger, is imposed and their total accrued pension must not exceed £50,000.

The Amending Regulations also make amendments to other regulations which include provisions relating to debts arising under section 75 of the Pensions Act 1995 - see our legislation section below.

Comment: As can be seen from the above summary, the new easement procedures involve complex and lengthy regulatory provisions. Although the Amended Regulations do introduce new easements which will be beneficial in some one-to-one transactions, they will not be available for multi-party restructurings and therefore will not be useful for the majority of transactions. Despite a consultation process that has run for well over a year, the mechanisms for both the general easement and the de minimis easement remain complex, and the Pensions Regulator has yet to issue even draft guidance for trustees.

Given that pressure for change to the original regulations has existed since September 2005, when the employer debt calculation moved to full buy-out, it is disappointing that the regulations as they currently stand will not prove to be the long-awaited solution to the problems caused by section 75 in many transactions.

In addition, the DWP has withdrawn some of the proposed technical amendments pending clarification, so further consultation and amendment seem inevitable.

Our view is that there are very few transactions where the changes will be beneficial and that in most cases it would be simpler, quicker and cheaper to accept that a debt is triggered and to seek to apportion it under the employer debt regulations.

View the Amending Regulations.

View the Explanatory Memorandum.