20 June 2011
In the Department for Work and Pensions (“DWP”) March 2011 publication entitled: “Structural Reform Plan Monthly Implementation”, the Government committed itself to reviewing the section 75 employer debt rules by the end of October 2011. In a recent interview with Pensions Week the Minister for Pensions promised that the consultation on the proposed reform is about to be launched and it would be undertaken quickly. The DWP believe that the reform it is proposing should ease the stringency of the employer debt rules for firms in the process of restructuring. He stated:
"If a company is restructuring but the strength of the promise behind the pension has not changed we will want to avoid some artificial rule. That is the spirit of what we want to do. We are consulting on this with a view to acting soon."
The DWP also said it planned that the legislation would be in force by October 2011 and suggested that it will be introducing “group guarantees” as an alternative to the payment of employer debt, as part of the proposed reforms. This would allow employers to put in place a guarantee ensuring another company in a multi-employer scheme covers the liabilities of a company exiting the group, allowing a restructure, without triggering a section 75 employer debt.
An extension of the grace period in which an employer has to enrol a member into a scheme with no active members is another likely reform. This is forecast to be an increase from the current 12 months to between 24 or 36 months. The proposed changes have been welcomed by a number of pensions’ professionals and organisations.
These reforms are welcomed since the rules concerning employer debt have been criticised as being overly complex and cumbersome to operate when companies restructure themselves. We will be issuing another INSIGHT commenting on the reforms when they are published by the DWP.
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