DWP consults on changes to the Employer Debt Regulations

Practical Law UK Legal Update 3-500-4987 (Approx. 2 pages)

DWP consults on changes to the Employer Debt Regulations

by Lesley Harrold, Norton Rose LLP

Published on 13 Sep 2013

This article is part of the PLC Global Finance September e-mail update for the United Kingdom.

The Department for Work and Pensions is consulting on Amending Regulations proposing changes to the current Employer Debt Regulations, aiming to assist up to 50% of corporate restructurings, provided certain conditions are met. This article explains the key proposals contained in the consultation.

The Department for Work and Pensions (DWP) is consulting on Amending Regulations proposing changes to the current Employer Debt Regulations, aiming to assist up to 50% of corporate restructurings, provided certain conditions are met.

A statutory debt may be triggered under section 75 of the Pensions Act 1995 (a Section 75 Debt) when a final salary scheme winds up, or where a sponsoring employer enters insolvency. A Section 75 Debt also arises when an "employment-cessation event" occurs (for example, where an employer ceases to employ active members when at least one other scheme employer continues to do so). The Amending Regulations propose changes to the definition of "employment-cessation event", so that a Section 75 Debt will not arise following certain corporate restructurings.

Two new mechanisms are proposed:

General easement. No Section 75 Debt would be triggered if:
- the exiting and receiving employers meet the "restructuring test" and the receiving employer will be "at least as likely" as the exiting employer to meet the scheme liabilities it acquires, as well as its own;
- neither employer is insolvent or is likely to become insolvent within the next 12 months;
- the exiting employer's corporate assets and employees are passed to another group employer, with the receiving employer taking on the exiting employer's pension scheme obligations; and
- the receiving employer's head office is in the UK.
De minimis easement. For small scale restructurings. There is no restructuring test but to avoid triggering a Section 75 Debt:
- the scheme's assets must exceed its liabilities measured on the Pension Protection Fund basis;
- the exiting employer must employ fewer than 2% of the total number final salary scheme members and its liabilities must not exceed GBP100,000; and
- in a rolling period of 3 years, no more than 5% of scheme members may be included in such transactions.

Both employers must give assurances regarding their current and expected solvency status over the following year.

The new provisions are expected to come into force in April 2010, with related guidance provided by the Pensions Regulator.

DWP consults on changes to the Employer Debt Regulations | Practical Law