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Law for Business

Knowhow - guidance - precedents

11 SEP 2012

Pensions Regulator: statutory employers of defined benefit pension schemes

Employers sponsoring or participating in final salary pension schemes should be aware that the Pensions Regulator has published a new statement, ‘Identifying Your Statutory Employer', to help trustees understand the importance of identifying their scheme's statutory employer and identify what steps to take where there is uncertainty. A statutory employer is legally responsible for meeting the scheme-specific funding requirements of a defined benefit scheme, paying the statutory debt due under s 75 of the Pensions Act 1995 (known as the ‘buy-out' debt) if certain events, including insolvency occurs, and triggering entry to the Pension Protection Fund (PPF) assessment period on insolvency.

The Pensions Regulator's statement warns trustees to take account of situations where statutory employers may depart, following scheme reorganisations, leaving the scheme without an employer responsible for any statutory pension under s 75 of the Pensions Act 1995. Trustees are advised to report any changes to the Pensions Regulator, in line with previous guidance. From November 2011, scheme returns will explicitly require trustees of final salary schemes to identify the statutory employers who are legally responsible to the scheme.

The government has recognised that some schemes have in the past lost their statutory employer, and are currently consulting on a limited extension of the Financial Assistance Scheme (FAS). The proposed extension covers schemes:

●        that lost their relevant employer before 10 June 2011;

●        for which the last remaining employer had an insolvency event before 6 April 2005;

●        that commence winding-up by the day before the new FAS regulations come into force.

If a scheme loses its statutory employer (or employers if it is a multi-employer scheme), the scheme may not be eligible for PPF protection and may not qualify for FAS. Without a statutory employer the scheme could be entitled to limited or no support from its sponsors. A scheme's statutory employer may be different from its principal or participating employers. If trustees discover that their scheme has no statutory employer they must tell the regulator. If the statutory employer is incorrectly identified, this could mean the trustees' assessment of the strength of the sponsoring employer's covenant to support the scheme is inaccurate.

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