multi-employer schemes and the pensions debt – 2022 (81)

by Roderick Ramage, solicitor,



This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case.  The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.

This supersedes my note of 2018 (articles 38)


When two or more companies participate in a pension scheme and one of them “leaves” the scheme and the scheme is in deficit, that company becomes liable for a debt on the employer under s75 of the Pensions Act 1995.  Although this applies primarily to final salary schemes, money purchase scheme too can have a debt, if there is a deficit because of the Pension Protection Fund levy or what the regulations call a criminal deficit.  The broad principles under the Occupational Pension Schemes (Employer Debt) Regulations 2005, SI 2005/678 remain, but have been substantially altered in detail by:

-      the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments ) (Amendment) Regulations 2008, SI 2008/731, brought into force on 6 April 2008;

-      the Occupational Pension Schemes (Employer Debt – Apportionment Arrangements) (Amendment) Regulations 2008, SI 2008/1068, brought into force on 15 April 2008;

-      the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments ) Regulations 2010, SI 2010/725, brought into force on 6 April 2010;

-     the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments ) Regulations 2011, SI 2011/2973, brought into force on 27 January 2012;and

-      Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2018, SI 2018/237.

The trigger for the liability is occurrence of an “employment cessation event”, which is defined in SI 2005/678 regs 2 and 6ZA as follows:

6ZA.—Employment-cessation events: general

(1)    In these regulations, “employment-cessation event” means, subject to paragraphs (2) to (7), an event which—

(a)    occurs in relation to a multi-employer scheme,

(b)    is not a relevant event, and

(c)    subject to  regulations 6A andf6F, occurs on the date on which—

(i)    an employer has ceased to employ at least one person who is an active member of the scheme, and

(ii)    at least one other employer who is not a defined contribution employer continues to employ at least one active member of the scheme.

Relevant event is, as defined in s75(6A) of the Pensions Act 1995 the insolvency of the employer, steps which might lead to the scheme’s entry into the Pension Protection Fund (PPF) or a resolution is passed for a voluntary winding up of the employer where a declaration of solvency had been made.  Paras (2) to (7) are concerned with corporate restructuring within regs 6ZB or 6ZC.The key point, except in the case of a restructuring under regs 6ZB and 6ZC,  is that the liability arises not on (eg) the disposal of the employer but on the employer ceasing to employ an active member of the scheme.  (Under the original regulations, it was ceasing to employ persons of the description of employment to which the scheme relates.)  Here are five examples showing how and when the debt can arise.

-      A debt will be triggered, unless the conditions in reg 6ZB or 6ZC are satisfied, if an employer company is reconstructed as part of a group reorganisation in such a way that it ceases to employ any active members the scheme.

-      If the employer company is sold and pension scheme membership for its employees ceases on completion, the liability will crystallise at completion.

-      The liability can arise after completion if the target employer company continues to participate in the scheme for a period and then ceases.

-      On an assets sale, if it is arranged for the buyer to participate in the scheme for an interim period, the buyer will become liable for the debt on ceasing to participate at the end of the interim period.

-      Simplest of all, a debt will be triggered if one employee is an active member of his employer’s scheme leaves, dies or retires.

In all cases there is a “period of grace” of not over thirty six months (increased from twelve months by SI 2011/2973) from the employment-cessation event or, if earlier,  the day on which the employer employs a person who is an active member of the scheme, if on or not later than three months (increased from two months from 6 April 2018, and previously increased from one month from 27 January 2012) after the event the employer written notice to the trustees of his intention during the period of grace to employ at least one person who will be an active member of the scheme: SI 2005/678 reg 6A.

The amount of the debt is calculated as the cost of buying annuities as estimated by the scheme’s actuary. The debt attributable to the leaving employer will be its proportion of the debt for the scheme as a whole based on the amount of its liabilities in relation to the total liabilities unless either one of the following arrangements (1 to 6) are made or one of the following two exemptions (7 and 8) apply. In each of cases 1 to 6 “the employer” is one leaving the scheme.

1      scheme apportionment arrangement (SI 2005/678 reg 6B)

The trustees and the employer may, before or after the date as at which the debt is to be calculated, agree the employer’s share of the debt, which may be nil.  The remaining debt, if there is more than one remaining employer, is apportioned amongst some or all of them.  The arrangement must satisfy the funding test (see below).

2      regulated apportionment arrangement (SI 2005/678 reg 7A)

This is similar to 1 and applies to scheme already in or in the trustees’ opinion likely to go into a PPF assessment period.  Such an apportionment cannot me made unless the Pensions Regulator (TPR) approves it and the PPF does not object to it

3      withdrawal arrangement (SI 2005/678 reg 6C)

A withdrawal arrangement similar to that under the regulations before 6 April 2008 may be made, but without TPR’s approval.  The withdrawing employer must pay Amount A, which is its share of the scheme’s deficit on a scheme specific funding basis, and one or more guarantors, who may be or include the remaining employers in the scheme, guarantee Amount B, which is the balance of the s75 debt.  The funding test must be satisfied and (on the DWP’s principle of micro-management and active disbelief in trust law) the trustees must be satisfied that the guarantor has sufficient financial resources to honour the guarantee. 

4      approved withdrawal arrangement (SI 2005/678 reg 7)

This is similar to 3 and applies if Amount A is less than the scheme specific deficit.  The funding test must be satisfied and the arrangement must be approved by TPR.

5      flexible apportionment arrangement (SI 2005/678 reg 6E)

This is broadly similar to 1, but (a) a debt is not triggered, so there is no need for it to be calculated, and (b) what are apportioned amongst one or more remaining employers are the employer’s liabilities, actual or contingent, as though its employees had been employed by the remaining employers.  The remaining employers would pay the debt, including the apportioned liabilities, when their own debts are triggered.  The funding test must be satisfied.

6      deferred debt arrangements (SI 2005/678 reg 6F)

Although this arrangement was aimed at industry wide pension schemes, in which the employers are not associated with each other, it may be used by multi-employer schemes with associated employers.  The trustees may agree an arrangement with the employer, if the scheme is not being wound up or in a PPF assessment period and the trustees are satisfied that a PPF assessment period would be unlikely and the employer’s covenant unlikely to weakened within twelve months of the arrangement taking effect.  While the arrangement is in force, the liability to pay the s75 debt is deferred and the employer remains an employer in relation to the scheme, retaining its responsibilities including  scheme funding.  The regulation specifies the events on which the deferred arrangement terminates.

funding test (SI 2005/678 reg 2(4A))

The funding test is met (paraphrasing the statutory definition) where the trustees are reasonably satisfied that the remaining employers will be reasonably likely to be able to fund the scheme and that it will have sufficient and appropriate assets to cover its technical provisions (Eurospeak for liabilities), and, in the case of a scheme apportionment arrangement, the effect of the arrangement will not be to adversely affect the security of members' benefits.

exemptions for restructuring

The two exemptions and the (micro-managed) procedures for them are in regs 6ZA to 6ZD added by the 2010 regulations as regs 6ZA and 6ZD in the 2005 regulations.  The effect of the exemptions is that there is no employment cessation event if there is a restructuring within regs 6ZB or 6ZC.

7      general exemption (SI 2005/678 reg 6ZB)

The new employer takes responsibility for existing employer’s liabilities on the trustees being satisfied that it is at least as likely as the existing employer to meet them

8      de minimis exemption (SI 2005/678 reg 6ZC)

There are not more than two employees or (if higher) 3% of the members with accrued rights and the annual amount of pension in respect of them does not exceed £20,000 in the year from 6 April 2010 increased by £500 pa for each subsequent year and the trustees are satisfied that the scheme is fully funded on the PPF basis.  If there is a second restructuring within three years, the total number of members must not exceed five or (if higher) 7.5% and the annual pension must not exceed £50,000.

exemption procedures

The regulations prescribe detailed procedures, consisting of seven steps for the general exemption and five for the de minimis, which must be completed in the right order and in accordance with the regulations.  An employment cessation event occurs if it becomes apparent within six years of a restructuring that, under either exemption, the restructuring is not implemented and reported to the trustees or, in connection with the general exemption, incorrect or incomplete information was given to the trustees, and the trustees are satisfied that, had correct or complete information been given, they would have reached a different decision.  The timescale to complete the restructuring is 18 weeks from the trustees notifying the employers of their decision in relation to the restructuring proposal or such longer period not exceeding 36 months as the trustees choose.



copyright Roderick Ramage

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