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Employer debt – third time lucky?

18 September 2009

18 September 2009 - The Government's consultation on changing the Employer Debt Regulations was launched yesterday. This focuses on the debts which arise when one employer in a multi-employer pension scheme stops employing active members.

The headline change is that no debt need arise on a restructuring of the employer group, where one employer stops employing scheme members only because all of its assets and all of its employees are being transferred to another participating employer in the same group.  The trustees will have to be convinced that this change does not lead to an overall weakening of the "combined" employer covenant.

The new regulations would also change the rules about how a debt - when it does arise on an employer's departure – can be "apportioned" to other employers who then take responsibility for meeting it. The changes here are said to reflect the Government's original policy intention.

It is not entirely clear whether what is now proposed would really let a new employer step into the departing employer's shoes (without affecting the potential debts of the other employers in the scheme), which in our view it should do.

Anna Rogers, partner in the pensions group at Mayer Brown, said: "This is the government's third serious attempt in four years to get this legislation right. What is proposed now is not simple, but it does show that the government is listening. The proposed changes on restructuring make sense: there has never an obvious reason why a debt should arise in that situation anyway. The proposals should iron out some of the bigger creases in the legislation but we still think there should be a simpler mechanism for adopting 'orphan liabilities'."

For more information:

PR Manager, London
+44 20 3130 8547

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