On the go: Four Scottish National party MPs have tabled an amendment to the pension schemes bill in a bid to solve the problem of Section 75 debt falling due on small, unincorporated employers.
Under Section 75 of the 1995 Pensions Act, employers in multi-employer schemes become liable for employer debt when they leave the scheme or cease trading.
Should they fail to pay, it becomes what is known as an orphan liability and the scheme’s remaining employers are burdened with it.
While this might not be a problem for multi-employer schemes with a number of large employers participating, the 1995 legislation seemed not to account for the possibility that small traders may be caught up in the same situation.
Pensions Expert reported in August on discussions between the Pensions Regulator and trustees of the Plumbing and Mechanical Services Industry Pension Scheme. That scheme has 350 employers remaining in it, out of 4,000 that have been through the plan since its inception.
Many of those remaining employers are small traders, and they have been saddled with orphan liabilities amounting to £1.6bn, threatening a number of small, unincorporated plumbing business owners in particular with bankruptcy and the prospect of losing their homes.
In seeking to amend the pension schemes bill, due to be debated in the House of Commons next week, SNP MPs Neil Gray, Richard Thomson, Pete Wishart and Alan Brown are attempting to add a clause that would support unincorporated and retired employers by allowing trustees not to pursue them for Section 75 debt.
The amendment lays out four conditions which, if all satisfied, would allow trustees to exercise discretion in their dealings with said employers.
The departing employer’s debt must be treated as coming due prior to the introduction of this provision; that debt must amount to less than 0.5 per cent of the scheme’s overall liabilities; the employer in question must have been acting as an unincorporated business during its membership of the scheme; and the trustees must deem it not in the best interests of the scheme to seek the recovery of the employer’s liability share.
According to the member’s explanatory statement in the amendment: “[The] new clause is intended to enable pension scheme trustees to exercise discretion not to pursue employer debt following an employer’s exit from a pension scheme where such debt is below a de minimis threshold.
“This aims to support unincorporated employers who are now retired for business and for whom there are no easements within the current regulation.”
