Amendments to the debt rules will now be the subject of a month-long informal consultation, following pensions minister Rosie Winterton’s announcement that employers needed some of their pension burdens alleviated.
Four proposals have been put to leading industry figures, including members of the Society of Pension Consultants, highlighted in the key points on the right.
Business representatives were among the first to publicly support an amendment to section 75.
John Cridland, deputy director-general of the Confederation of British Industry, said: “During these difficult economic times, barriers to corporate activity must be minimised if firms are to adapt and survive. Pension schemes are best protected by keeping the sponsoring employer committed and solvent, which means ensuring pension costs are fair and affordable.”
The National Association of Pension Funds also welcomed the proposals. Chief executive Joanne Segars said: “These changes will help recognise the right of employers to undertake corporate transactions and restructurings without adversely affecting member protection.”
Consultants appeared happy with the proposals. Mark Frost, partner at Barnett Waddingham, suggested that a consultation could provide the balance needed between security for members and allowing employers to operate their businesses. “Without relaxations of the section 75 rule, the system will fall apart,” he added.
However, some commentators called for further clarity on the proposals. Malcolm McLean, chief executive of the Pensions Advisory Service, said: “I am still not completely clear what the Department for Work and Pensions (DWP) is proposing, but I doubt very much that they have in mind abandoning all the legislation brought in during 2004. It will be interesting to see how this develops during and after the consultation exercises.”
The DWP press office confirmed the consultation formed part of a rolling deregulatory review.
It added: “Our proposals are limited to corporate restructurings where the employer covenant was strong before the restructuring, and there must be no detrimental effect or weakening of that covenant after the restructuring.”
A public consultation is expected to follow in February 2009.
Charlie Kirby
CONSULTATIONS OPTIONS:
1. Scheme apportionment as the default – where a merger or acquisition within the existing group allows the outstanding amount due to be apportioned to the accepting employer/s, when a debt might otherwise have been triggered on the original employer
2. Introducing a minimal threshold where outstanding debt to a pension scheme is expressed as a proportion of total scheme liabilities, and below which corporate transactions would not trigger a debt on employers. This small debt would become part of the larger company’s total liabilities
3. Reducing (smaller) employers’ debt from the full buyout level to either the scheme funding level or the level of the PPF protected rights (under section 179 of the Pensions
Act 2004)
4. “Do nothing”. The legislation for apportionment would continue to trigger the full buyout debt on the employer first, with the reduced apportioning of that debt only being allowed after the funding test had been met and trustees had agreed to it
Source: Department for Work and Pensions
