Here’s an easy question for trustees to think about on their summer holidays: who are the statutory employers for my pension scheme? Although the answer may appear an easy one, the reality is that identifying the employers obliged to fund a scheme is often far from straightforward. From this November, however, the Pensions Regulator will require trustees to identify their scheme’s statutory employers in their annual scheme return.
Why is it Important for Trustees to Identify their Scheme Employers?
Identifying the employers obliged to fund their scheme and the extent to which they must do so is a critical task for trustees. Only after doing this can trustees make a proper assessment of the employer covenant supporting their scheme and determine their scheme’s funding arrangements and investment strategy. Trustees also need a proper understanding of who are a scheme’s employers to identify if an employer debt to a scheme becomes due and if a PPF assessment period is triggered on an employer insolvency.
Trustees need to be aware that not every company in their employer’s group will be obliged to fund their scheme. Legislation imposes this duty only on certain employers and former employers. As a general rule, an employer who has never employed any active members of a scheme is unlikely to have to contribute to a scheme. Changes to the legislation relating to when an employer ceased to participate in a scheme and became liable to an employer debt also complicate the position. In November, the Court of Appeal is due to consider the issue of who, before April 2008, the law classed as an employer and when a person ceased to be an employer becoming liable to a debt (PNPF Trust Company Ltd v. Taylor).
Identifying the proportion of a scheme’s buy-out deficit that an employer is liable to meet where an employer ceases to participate in a scheme or becomes insolvent or a scheme starts to wind up can be another difficult area. Schemes may find that their current records do not contain the data necessary to properly apportion liabilities between employers or to identify when or if an employer has ceased to participate in a scheme.
What Steps Should Trustees Take?
There are several steps trustees can take to identify their scheme’s employers and quantify their obligation to fund their scheme. These include:
- Checking their scheme’s Schedule of Contributions.
- Checking what their scheme’s Definitive Deed and Rules provide about employers’ duties to fund the scheme. Trustees may need legal input on this issue.
- Checking Deeds of Adherence / Participation. Trustees should check whether employers still participate. For employers who have ceased to participate, trustees should identify the date of ceasing to participate, the debt (if any) becoming due from the employer and whether this has been paid.
- Checking with the scheme’s administrators and actuarial advisers whether there are sufficient scheme records to identify the proportion of scheme liabilities and buy-out deficit for which each employer is liable.
- Reviewing old contracting-out certificates - these can be a useful aid to identifying previous participating employers and when they began and ended participation.
- Checking Companies House records - in large groups, companies may have swapped names so trustees may need to undertake further investigative work to identify the legal entities that are employers.
- Reviewing member payslips, company reports and accounts and HMRC filings.
Where the situation is unclear as to whether a person is or has been an employer or whether an employer debt is due as a result of ceasing to be an employer, trustees should take legal and actuarial advice.