The chairman of the work and pensions select committee has questioned the pensions minister about what the government plans to do to solve the issue of plumbers facing pension bills which could reach millions of pounds.
Frank Field wrote to Guy Opperman asking for his comments on this issue, which he said was leaving many employers “facing potential bankruptcy”.
FTAdviser reported this week (April 23) that the Plumbing and Mechanical Services (UK) Industry Pension Scheme has started issuing section 75 debt notices for the first time after a data matching exercise to find old employers which didn’t pay what they owed when they left the scheme.
The Plumbing scheme is one of the few multi-employer pension schemes in the UK and, according to current legislation, liabilities from one sponsor become the responsibility of other companies in the pension fund when one of these leaves the scheme.
This happens in cases of insolvency or when the company stops employing active scheme members.
Mr Field noted that many of the employers involved were family-owned businesses with no limited liability protection, and were therefore at risk of personal bankruptcy, because the law “requires them to pay substantial sums to fund the pensions of employees of other firms”.
“This surely cannot be what parliament intended to happen when passing this legislation,” he argued.
Mr Field said that while the trustees themselves have a duty to secure the benefits for the schemes’ members, they have recognised the issues with the current system, and “have stated that they would like to see the section 75 employer debt legislation reformed to make it fairer to employers participating in non-associated multi-employer pension schemes like this one”.
He has urged Mr Opperman to let the committee know what the government planned to do to address this issue, “both for these employers in particular and more widely to review this legislation, which does not seem to be working as it should be”.
When a company leaves the Plumbing scheme, this creates a section 75 debt for that employer. If this isn’t paid at that time, it will become an orphan liability to other scheme sponsors.
The Plumbing scheme has more than 35,000 members – of which 3,200 are active - and assets of £2bn.
The section 75 debt requirement was introduced in 1997 and assessed on the minimum funding requirement.
In 2005, the legislation was changed, and the employer debt started to be calculated on a buy-out basis – in which an insurance policy is issued to each pension scheme member individually – which increased the orphan liabilities.
According to the last actuarial valuation, in 2017, the pension fund has orphan liabilities around £400m.
maria.espadinha@ft.com
