Plumbing companies are to be asked to pay pension bills which could add up to millions of pounds. The Plumbing and Mechanical Services Industry Pension Scheme will be issuing section 75 debt notices after data showed old employers who did not contribute what they owed after leaving the scheme. This is the first time such notices have been issued, with around 150 estimated to be sent.
Kate Yates, Plumbing Pensions administrator chief executive, told FTAdviser that as a result of these notices, some companies could be facing insolvency.
The Plumbing and Mechanical Services Industry Pension Scheme is one of the few in the UK to be a multi-employer pension scheme.
The Money Advice Service describes a multi-employer pension scheme as “an ‘umbrella’ workplace pension scheme that can be accessed by different, unconnected, employers and their employees.”
According to current legislation, liabilities from one sponsor then become the responsibility of other companies in the pension fund when one of those leaves the scheme.
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This happens when a company stops employing active scheme members or becomes insolvent.
When a company exits the scheme, a section 75 debt is generated for that employer.
If this is not paid when requested it becomes the responsibility of other scheme sponsors.
There are more than 35,000 members of the Plumbing and Mechanical Services Industry Pension Scheme, of which 3,200 are active and assets are at £2billion.
In 2017 the last actuarial valuation found that the pension fund has orphan liabilities of around £400million.
Ms Yates told the Financial Times actuaries were still assessing the current total value of the debt notices, but these will vary “from tens of thousands to millions of pounds”.
She also argued it was going to be “extremely worrying and distressing” for companies, as the money needed could be “quite significant”.
This may result in businesses ending, the company becoming insolvent and people losing their jobs.
Frank Field, Chairman of the work and pensions select committee asked pensions minister Guy Opperman what the Government planned to do to solve the issue of plumbers facing pension bills which could equal millions of pounds.
In his letter to Mr Opperman, Mr Field asked for comments on an issue which could see many employers “facing potential bankruptcy”.
Mr Field drew attention to the fact most employers come from family-owned businesses who had no limited liability protection.
This creates the risk of personal bankruptcy as the law “requires them to pay substantial sums to fund the pensions of employees of other firms”.
Mr Field argued: “This surely cannot be what parliament intended to happen when passing this legislation.”
He pressed Mr Opperman to let the committee know what the Government planned to do to address this issue, “both for these employers in particular and more widely to review this legislation, which does not seem to be working as it should be”.