An action group is calling for the resignation of Alan Pickering CBE as chairman of the Plumbing and Mechanical Services Industry Pension Scheme.
This follows the scheme’s issue of debt notices earlier this year to 150 employers, in some cases for hundreds of thousands of pounds.
Small plumbing businesses face potentially crippling debts to the industry’s multi-employer defined benefit scheme, which could bankrupt them and see owners lose their homes if they have not incorporated.
As a result of section 75 of the 1995 Pensions Act, employers participating in a multi-employer scheme become liable for an employer debt when they withdraw from the scheme or cease trading. Should this debt not be paid on time, the scheme’s remaining employers are liable to this debt, known as an orphan liability.
They have no idea who to turn to. They don’t understand how they have accumulated this debt
Garry Forster, Plumbing Employers Action Group
The scheme has 350 employers remaining in it, out of 4,000 that have been through the plan since it started in the mid-1970s. Some 60 per cent of the scheme’s liabilities are orphan on a buyout basis, amounting to £1.5bn.
Garry Forster, a spokesperson for the Plumbing Employers Action Group, said: “The trustees failed to implement section 75 for 19 years, and did not even advise employers about the risk of section 75 debts until 2016.”
He added: “[Mr] Pickering has been chairman throughout this time, and hence PEAG believes he should resign with immediate effect as PEAG members have lost confidence in him.”
Mr Forster also pointed out that Mr Pickering, whose government-commissioned 2002 report recommended the creation of the modern Pensions Regulator alongside simplification proposals, has been a non-executive director of the watchdog during his chairing of the plumbing scheme.
“How [the trustees] got away with not applying the laws they should have done for such a long period of time just beggars belief,” Mr Forster said.
“If this had been done by someone sitting in a yacht in Monaco, TPR would have been over it like a rash.”
Debt recovery will be minimal
The plumbing scheme’s trustees estimate that the section 75 debts pursued by their letters amount to around £120m. However, they have also confirmed that only a small portion of this will be realised, with Mr Forster calling the reported 10 per cent recovery “almost immaterial” for a £2.2bn scheme.
Despite the small total size of the debts, some plumbers are facing extreme hardship. Semi-retired plumber Murray Menzies has recently been reported as facing a bill of more than £1m to the scheme, and Mr Forster pointed to the case of a Nottingham couple in their 80s being asked for £330,000 resulting from sponsoring four members for eight years.
“She is on medication over this,” he said. “They have no idea who to turn to. They don’t understand how they have accumulated this debt.”
Some plumbers have been able to take advantage of deferred debt and flexible apportionment arrangements, but these do not apply to retired plumbers who triggered a debt a few years previous and who no longer have a business.
Is buyout debt a fair price?
The original intention of Section 75 of the Pensions Act 1995 and the associated associated regulations that are causing plumbers difficulties was noble - to stop employers intentionally winding up a business in order to avoid paying a large debt to the defined benefit scheme.
A statutory instrument in 2005 converted the basis for this calculation to buyout, anticipating that in a single-employer case, the scheme would have to wind up upon the employer's closure.
However, the case is less clear for multi-employer schemes, where the exit of micro-sponsors like family plumbing businesses do not necessarily force the scheme to wind up.
Ian Neale, director of Aries Insight, said that the more technical provisions basis for ongoing costs would therefore "produce a lower and more justifiable figure than the prescribed 'buy-out' basis".
"Mention should be made of various 'sticking plaster' solutions to the problems created by these now-notorious employer debt regulations. In particular, deferred debt arrangements and flexible apportionment arrangements are sometimes mooted as a solution for employers unable to stump up the money," he said. "These do not address the question of whether the basis for calculation of the debt was fair in the first place."
Mr Forster said: “These are the ones we are most concerned about. These are the ones we are trying to get a further easement for, but we are just getting nowhere.”
According to Plumbing Pensions, the previous inaction on orphan liabilities has been caused by the complexity of legislation and its interaction with multi-employer schemes, poor data preventing calculations from being carried out, and the cost of carrying out the recoveries.
Defending his role, Mr Pickering, who is also president of independent trustee company Bestrustees, said: “Plumbing Pensions recognises that pursuing significant sums of money from small business owners is very stressful and distressing. We are continuing to work hard to ensure employers have all the information they need to support them through this process and help them understand their options.
“Section 75 legislation was brought in to protect members’ benefits and aims to ensure there is enough money in the pension scheme when an employer leaves a multi-employer pension scheme,” he explained.
“Since 2005, the Plumbing Pensions scheme has been in regular contact with government officials to try and change this law to make it fairer... However, it became clear after extensive discussions with the government that it would make no further changes to the legislation. The scheme therefore has had no choice but to begin seeking payment of section 75 debts from employers that left the scheme.”
Mr Pickering also addressed the suggestions of conflicts: “I was appointed a non-executive member of the TPR board in February 2005 and held this position for seven years. Both TPR and my fellow directors of Plumbing Pensions were aware of my various appointments.”
Also commenting, a spokesperson for the scheme and trustees said: "The Trustee recognises with hindsight that more information would have been helpful for employers. However, this was not the responsibility of the Trustee. The Trustee’s primary duty is to invest the Scheme’s assets to pay member benefits in accordance with the Scheme rules. Pension scheme trustees are not required or obliged to tell employers about their legal responsibilities when they join or participate in a pension scheme. Employers should take their own independent advice."
Government unlikely to ease rules
The plight of employers in the plumbing scheme has come to light in recent media coverage, but a long history of engagement with politicians on section 75 debts reveals limited prospects of help for the former plumbers in question.
The PEAG has been contacting MPs and ministers for three years but, according to Mr Forster, it has invariably been told that the government is trying to avoid setting a precedent for other multi-employer scheme participants to dodge their obligations to members.
Scottish plumber’s plight highlights ongoing Section 75 issue
The boss of a small Scottish plumbing company is the latest to receive a bill of more than £1m to cover a shortfall in a multi-employer defined benefit scheme.
Mr Forster believes the lack of action from the government is due to the relatively small number of people affected; just 150 section 75 letters have been sent out.
But he added: “The individual circumstances where people have been affected by bankruptcy are appalling. If there were 5,000 people affected by this, as there were in British Steel over transfer values, something would have been done by now.”
Former pensions minister Baroness Ros Altmann is the latest to add her support for the plumbers, recently telling Pensions Expert that employers “have been badly let down by their scheme and the rules of our current pension system”.
She said: “Larger employers were allowed to walk away paying little or nothing towards the full buyout costs of their staff pension promises, and have left the bill to be picked up by these poor individuals.”
However, some experts have called Baroness Altmann’s comments hypocritical. David Davison, a director and owner of Spence & Partners, said: “This issue was highlighted to her when she was pension minister and she just totally ignored it.”
Ian Neale, director at Aries Insight, said that further easements could be brought in to make the application of the regulations "less onerous and less grossly unfair", but that polticians should be aware fo the limitations of "sticking plaster" solutions like the deferred debt arrangement.
"One possibility, included in the private member's bill promoted in the last Parliament by Alan Brown MP, might be to allow unincorporated employers to transfer to a newly-incorporated entity for the specific purpose of the transfer," he said.A better solution, however, would be to revoke these patchwork regs in their entirety and take a fresh look."
