Amendments to the s75 employer debt regulations
The UK Government plans to introduce a further easement to the employer debt rules for employers participating in multi-employer schemes.
Employers and pension scheme trustees will be able to enter a deferred debt arrangement providing a ‘funding test’ is met.
The ICAS Charities Panel and ICAS Pensions Panel welcomes the proposal in a joint response to the Department of Work and Pensions. By entering a deferred debt arrangement, an employer will be able to stop building up pension liabilities in the pension scheme through closing to future accrual without immediately triggering an employer debt.
The risk of triggering cessation debt
An employer debt is calculated on a cessation basis, reflecting what it would cost for an insurance company buy out. For non-associated employers participating in a multi-employer defined benefit scheme, triggering a cessation debt is likely to place it in financial difficulty or even insolvency.
However, entering a deferred debt arrangement will not remove the risk that an employer debt could be triggered in the future. In contrast, an employer participating in a single employer scheme which decides to close to future accrual would not trigger a cessation debt under existing rules.
ICAS is calling for non-associated employers to have the option of closing to future accrual without the risk of triggering an employer debt provided they remain fully responsible for their accrued liabilities.
This is not a new issue and the challenges it creates for non-associated employers, including charity employers, is well documented: the Government first consulted on this issue back in 2015 and ICAS submitted a robust response at the time.
Urgent change needed
More radical reform of the employer debt rules remains urgent and we believe that it is possible to reform the rules in a way which enables scheme trustees to protect member benefits while enabling employers to stop building up pension liabilities they cannot afford.
Changes to the employer debt rules, within the scope of this consultation, would only impact employers participating in private sector schemes and would not impact charity employers participating in the Local Government Pension Scheme (LGPS) which face similar challenges.
ICAS believes that the UK Government should also review the approach taken by LGPS scheme funds towards employer debt and very much hopes that more fundamental reform of the private sector employer debt rules is forthcoming, providing an impetus for change in the local government sector across the UK, including Scotland where this is a devolved matter.