TPR in discussions with Plumbing trustees over governance failures

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. The Plumbing scheme has 350 employers remaining in it, out of 4,000 that have been through the plan since it started in the mid-1970s.

Sixty per cent of the scheme’s liabilities are orphan on a buyout basis, amounting to £1.5bn. However, the pension fund only began collecting Section 75 debts in 2019, despite regulations requiring collection since 2005.

It is crystal clear that this trustee board fails the tests of modern governance. It has conflicts of interest writ large

Ros Altmann, former pensions minister

Since then, several cases of small plumbing businesses facing potentially crippling debts have been revealed, which could see business owners become bankrupt and lose their homes if they have not incorporated.

Is scheme’s trustee board fit for purpose?

Meanwhile, questions have been raised over the composition of the Plumbing scheme’s trustee board. Garry Forster, spokesperson for the Plumbing Employers Action Group, argued that “300 of the remaining employers who are locked in and responsible for funding the scheme have no representation whatsoever”. 

Former pensions minister Ros Altmann, who recently put forward a remedy in the House of Lords for this situation — which failed to gain government support — shares a similar opinion.

She said: “It is crystal clear that this trustee board fails the tests of modern governance. It has conflicts of interest writ large.”

Pensions Expert reported in March that the scheme trustees asked a Scottish court to let them use plan assets to fund legal battles, after an unnamed participating employer commenced action against the fund.

Baroness Altmann noted that the “Scottish Court papers identify disastrous failings on the part of the trustees”.

“They failed to implement legislation as they were required to do. They failed to keep up-to-date accurate records of members and employer contributions. They have allowed some employers to walk away without paying Section 75 debt, but have refused to recognise the need for others to do so.”

Baroness Altmann argued that for many years the “trustees continued to tell employers that the scheme was fully funded, when clearly there was a growing Section 75 shortfall”.

“Now, when employers are facing bankruptcy, the trustees are trying to go to court to be able to use scheme assets to fight against these individuals who will lose their homes and their entire life savings. This was never the intention of Section 75 or anti-avoidance powers,” she added.

In response to Baroness Altmann criticisms, Kate Yates, chief executive of Plumbing Pensions - the trustees of the scheme - noted that her and her colleagues are “aware of the significant impact the debt legislation would have on plumbing employers” and have “lobbied to try and change the law to make it fairer for employers”.

“However, it became clear after extensive discussions with government that they 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 all employers that left the scheme and where a legal easement wasn’t or couldn’t be used.”

The trustees of the scheme have been slow to act on an independent governance review promised six months ago. Ms Yates explained that terms are still being negotiated in relation to the external independent party. “Therefore, we cannot give any information as to who that is at the present time,” she said.

Penny Cogher, partner at Irwin Mitchell, believes TPR should have already intervened in this case to appoint its own professional trustees to run the scheme.

In response, a spokesperson for the regulator said: “The situation with this scheme is very challenging, we are aware of concerns raised about the management and we are in discussions with the trustees.”

Legislation not fit for purpose

When the original legislation was enacted, it could not have been envisaged that small traders would be within its scope. Mr Foster has been corresponding for months with the Department for Work and Pensions and pensions minister Guy Opperman on this topic.

He said: “They seem to be taking the view that these people are mere collateral damage in the war against unscrupulous employers and shrugging their shoulders.

“They don’t seem to care that this small group of people are going to be made bankrupt through no fault of their own, just as a result of the law of unintended consequences over this poorly drafted legislation.”

Scottish Labour and Co-operative Party MSP David Stewart has campaigned on this subject too: “I have written to Mr Opperman a multitude of times since the start of the year, when I travelled to Whitehall for talks I scheduled with him and his DWP policy leaders.”

Mr Stewart gave the example of his constituent Murray Menzies, who has a “so-called debt of £1.2m” that is “wreaking havoc” on his well-being.

“It had frozen all his hopes for the future, put paid to any chance he ever had of a retirement. I told them he is going through what could only be described as a living hell,” Mr Stewart stressed.

He added: “I said surely something could be done, surely there is a way out for Mr Menzies and those other unincorporated employers hit so unfairly with debts so massive only the sale of their homes and assets could repay them. But I was told the government had initiated a lot of work on this issue and that all stones were turned and no escape routes found.”

In response, a DWP spokesperson said: “We have invested considerable time and resource reviewing the issues surrounding employer debt and, following these reviews, have introduced measures into legislation to help employers manage their debts. 

“We continue to talk to and listen to stakeholders about aspects of the operation of the employer debt regime.”

The issue with Section 75 debt is not exclusive to the Plumbing scheme, as it also impacts hundreds of third-sector employers participating in similar pension funds.

David Davison, director at Spence & Partners, said: “Similar issues are prevalent with employers in Local Government Pension Schemes and are driving participating employers into insolvency. No one at UK governmental level is grasping the nettle.”