The Government has announced the launch of a Section 75 Consultation, following claims that the employer debt rules stand in the way of business restructure, and is considering plans to make them more straightforward.

Section 75 of the Pensions Act 1995, which compels any business winding up a pension scheme as part of a corporate restructuring or demerger exercise to fully cover its liabilities, will be looked at by the Government. This was subject to an informal consultation last November.

Proposals would see an end to employers in well-run multiple-employer schemes being required to meet a debt if they planned to restructure, depending upon circumstances and conditions. Where a multi-employer scheme winds up, however, these changes will not apply, nor when in the event of insolvency. In these cases the existing employer debt rules continue to protect members' benefits.

"We want to help legitimate business activity without undermining protection of employees' pensions," commented Angela Eagle, Minister of State for Pensions and the Ageing Society. "We need to get the balance between flexibility for employers and protection for employees, which is why we have been discussing our proposals with a range of interested parties, including the TUC and the CBI. We estimate our main proposal could help up to 50 per cent of corporate restructurings. I look forward to seeing the market response to this consultation."
Other technical amendments have been proposed relating to Section 75, with the aim of making the existing Employer Debt (Section 75) regulations work better in practice.

Sacker & Partners LLP has commented on the changes to relax the Employer Debt (Section 75) legislation: "The proposed easements from Section 75 debts when businesses restructure are welcome additions to the employer debt legislation," said Stuart O'Brien, an associate at the law firm. "However, the new provisions have been drafted as just that - an addition. I can't help wondering whether adding an extra and highly prescriptive layer on top of an already complicated piece of legislation is really the best approach. The suggested new provisions have numerous hoops to jump through and not all reorganisations will make it through.

"In fact the ability for one employer to assume the underlying pension liabilities attributable to another employer on reorganisations was already largely there in the existing regulations in the guise of scheme apportionment arrangements. However, instead of building on that mechanism (and ironing out some of the wrinkles), the proposed amendments now seek to prevent scheme apportionment arrangements from being used to reallocate underlying liabilities in this way.

"No doubt the final regulations will look very different from the current draft, but the key will be to ensure that easements in some areas do not result in retrograde steps in others."

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