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.
Since the closure of the scheme for the plumbing industry on June 30, Plumbing Pensions has continued to recover millions in orphan liabilities, to the consternation of small family businesses and Work and Pensions Committee chair Frank Field, despite an apparently healthy funding level.
On November 6 the BBC drew attention to the plight of small plumbing company boss Murray Menzies, who is being pursued for £1,198,300 to cover a shortfall in the multi-employer fund under the Section 75 rules.
Mr Menzies, whose case was first highlighted byThe Herald newspaper, has no way of paying the money – selling his home and everything he owns would only cover a fraction of his “debt” to the pension fund.
His small team were put in the Edinburgh-based Plumbing Pensions Scheme. For 40 years Mr Menzies paid a monthly employers’ contribution, typically about £1,000. Then, four years ago, he decided to retire.
He told the BBC: “I thought ‘great, another thing out of the way’. Then all of a sudden I got this letter saying I had triggered Section 75. I had no idea what they were talking about.”
According to the BBC, 560 employers across the UK who joined the Plumbing Pensions Scheme are facing similar liabilities, many of them former small business owners who have no means of paying it off.
Schemes calls for law change
While the plan has around £400m in orphan liabilities, it is reportedly fully funded on a low-risk basis.
Commenting, Kate Yates, chief executive at Plumbing Pensions, told Pensions Expert: “Section 75 legislation was brought in to protect member benefits, and aims to ensure there’s enough money in the pension scheme when an employer leaves a multi-employer pension scheme. Since 2005, the Plumbing Pensions Scheme has been in regular contact with government officials to try and change this 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, and so this ‘one-size-fits-all’ approach is having unintended consequences for plumbers.”
The plumbing scheme has therefore had to begin writing to employers who have left the scheme, seeking wind-up payments, after consulting on the method used.
Ms Yates continued: “Plumbing Pensions recognises that pursuing significant sums of money from small business owners is very stressful and distressing. We are working hard to ensure employers have all the information and guidance they need to support them through this process and help them understand their options.”
Industry angered
Criticising the scheme, David Davison, director at Spence & Partners, tweeted that there is “no excuse for this scheme not collecting debts for 14 years, leaving the ‘last men standing’ with even bigger debts or for the appalling communication”.
He added: “Funny how this scheme couldn’t implement the law when so many other multi-employer schemes could. Excuses are all a bit hollow.”
Fiona Hodgson, chief executive of the Scottish and Northern Ireland Plumbing Employers’ Federation, told Pensions Expert: “The impact of Section 75 has the potential to be devastating for local businesses and the wider community, with the possibility of huge Section 75 debts looming over businesses who were simply trying to be good employers by providing a pension for their employees.”
She said she was disappointed by the lack of government action: “As well as the significant impact on businesses faced with pensions liability, this is having a significant detrimental effect on the mental health, lives, and communities of our affected members.”
Baroness Ros Altmann called for a change in the law to protect unincorporated employers simply trying to do the best for their staff. However, Mr Davison said that representatives of the charity sector had been ignored when they presented these issues to her as pensions minister.
“These men paid all contributions they were asked for, they have been badly let down by their scheme and the rules of our current pension system. 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,” she said.
“Trustees did not alert the employers to the risks and, in my view, should not be allowed to force people into bankruptcy when they have done nothing wrong. This is a massive failure of our pension system.”
