The Plumbing and Mechanical Services (UK) Industry Pension Scheme will close to future accrual in June to avoid a contribution increase.
FTAdviser reported last year that the career average scheme was consulting employers on this solution, as the pension fund would have to almost double the contributions rate.
After a consultation of companies and scheme members the administrator, Plumbing Pensions, has now announced the scheme's closure.
Plumbing employers will need to auto-enrol their employees into a new pension arrangement from July 2019 onwards.
Plumbing Pensions is writing to employers and to all active members to explain what closure means for their benefits in the scheme, which are safeguarded.
Members with a deferred pension which has not yet started and members already receiving a pension are not affected by this announcement, it stated.
The scheme has assets of more than £2bn and nearly 35,000 members, of which around 2,500 are employee affected by the closure.
Kate Yates, chief executive of Plumbing Pensions, said it was sad that the scheme needed to close “after so many years of being able to offer good value, low-cost pensions to plumbers”.
She said: “Our aim has always been to run the scheme in the most responsible way to ensure members receive all the benefits they are due in full.”
Ms Yates argued that trustee and the constituent organisations that jointly decide the scheme’s benefits believed closing the scheme and not letting members build up any new benefits was "the most responsible and practical way to protect members benefits for the future”.
She added: “We want to reassure members that the scheme is in a very good financial position with enough money to pay all member benefits built up to now, and the decision to close the scheme to future accrual helps safeguard that position.”
FTAdviser reported in April that the Plumbing 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 current legislation means 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.
When a company leaves the 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 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
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