Pensions Act 2004

Section 271: Debt due from the employer when assets insufficient

1065. This section amends section 75 of the Pensions Act 1995 (deficiencies in the assets). In summary new section 75 ensures that in certain circumstances a debt can be placed on the sponsoring employer of an occupational pension scheme, if the value of the scheme’s assets is less than its liabilities. Broadly speaking, a debt for an amount equal to the difference is triggered if the scheme winds up or the employer becomes insolvent or there is an application to the Board of the Pension Protection Fund to assume responsibility for the scheme on the basis that the employer is unlikely to continue as a going concern or a resolution is passed for the voluntary winding up of the solvent employer. Detailed conditions apply to the three circumstances in which a debt can be imposed and these are set out in new subsections (2), (4), (4B) and (4C) of section 75.

1066. Subsection (2) replaces the existing subsection (1) to (4) of section 75 with new subsections (1) to (4C).

1067. New section 75(1) as amended applies the section to occupational pension schemes that are not money purchase schemes, prescribed schemes or schemes of a prescribed description. The current prescribing powers in section 75(9) are removed by subsection (6).

1068. New section 75(2) and (3) set out when a debt falls due from an employer if there is a deficit in the scheme’s assets at a time when the scheme is winding up but before any relevant event occurs. The trustees or managers can trigger a debt equal to the amount of the deficit by designating that time under subsection (2)(b). “Relevant event” is defined in new subsection (6A). However, a debt is not triggered under this section if a relevant event within subsection (6A)(a) or (b) (an insolvency event etc) occurs before the scheme begins to wind up and that event has not been “cancelled” by a binding “cessation notice” issued before the start of wind up.

1069. Similarly the amount of any deficit becomes a debt due by the employer under subsection (4) if the employer becomes insolvent, there is an application or notification regarding the scheme or enters into members’ voluntary liquidation. Subsection (4) sets out detailed rules about this. In the case of an insolvent employer, and an application or notification, the debt is contingent upon either confirmation that a scheme rescue is not possible or the scheme starting to wind up.

1070. New section 75(6A) defines relevant events as:

• where an insolvency event (as defined as in section 121 occurs in relation to the employer in relation to an occupational pension scheme;

• where the trustees or managers apply to the Board under section 129 asking it to assume responsibility for a scheme on the basis that the employer is unlikely to continue as a going concern or the Regulator notifies the Board of the Pension Protection Fund of such a scheme under that section;

• where in relation to the employer a resolution is passed for a voluntary winding up, in circumstances where the employer is solvent.

1071. New section 75(6B) defines cessation notices and cessation events for the purpose of this section. Broadly a cessation notice is where a withdrawal notice is issued or the insolvency practitioner issues a notice that he is unable to confirm the status of a scheme under section 148 does not apply. A cessation event occurs when a cessation notice becomes binding. A cessation event is a possibility until the notices specified in subsection (d) and (e) are no longer reviewable and any review has been concluded.

1072. New section 75(6D) provides that a debt does not arise on a voluntary winding up of a solvent employer if the resolution for the voluntary winding up has been stayed or the winding up has been converted to a creditor’s voluntary winding up. The subsequent creditor’s voluntary winding up will itself be a relevant event for the purposes of subsection (4)