The Plumbing and Mechanical Services Industry Pension Scheme is consulting on its section 75 employer debt methodology due to legislative challenges, it has revealed.

The industry-wide scheme, which currently holds 400 contributing employers with 36,000 members, has stated that it is experiencing “particular challenges” when applying the employer debt legislation to its particular circumstances.

Under the employer debt legislation, when one employer ceases to employ any active members into a multi-employer scheme, there is the requirement to make a payment to the scheme, based on the employer’s share of the deficit calculated on a full buy out basis.

While suggestions have been made to ease the requirements for employers, the Department for Work and Pensions said in its March 2018 white paper that it will not be making further changes. This is on the basis that: “Existing arrangements provide sufficient flexibility for employers to manage their section 75 debts and that maintaining the current calculation method is the most viable way of ensuring that members receive their pension benefits over the longer term,” the DWP said.

The plumbing scheme has stated that the legislation is “not easy to apply” due to the way the scheme held data as member-centric, which makes it “extremely difficult” to extract membership data from individual employers. Also, because the practical difficulties mean the cost of carrying out the debt calculations and pursuing payment each time an employer has a trigger event is likely to exceed the recovery level in most cases, the scheme explained.

The plumbing pension scheme explained that: “In essence the easement allows an employer to exit the scheme and defer the section 75 employer debt that would have otherwise been triggered. Employers who use this easement will remain responsible for the ongoing funding of the scheme.”

Once the scheme has decided on the most suitable debt methodology, it will begin to issue s75 employer debt notices to businesses that have had a trigger event, it has confirmed.

The scheme has produced Employers Consultation 2018 FAQs to help employers and their advisors understand the trustee’s proposal on how to calculate section 75 employer debts.

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