No need for new options: DWP should clarify existing mechanisms

Sackers has today responded to the Department for Work and Pensions (DWP) consultation  on the latest round of proposed changes to the Employer Debt Regulations.

Zoë Lynch, a partner at Sackers, said:

“The DWP wishes to address concerns that the employer debt regulations still unnecessarily inhibit corporate activity, in particular the ability of companies to restructure in response to economic changes.  But the proposed ‘flexible apportionment arrangement’ fails to create a fundamentally different option for employers and adds nothing new to the employer debt landscape. 

“Rather than introduce yet another layer to an already complicated set of regulations, the Government would do better to listen to the repeated calls from the pensions industry for it to simplify the existing mechanisms for dealing with employer debt.”

Notes to editors:

In 2010, two easements to the employer debt legislation were introduced to facilitate corporate restructurings, provided stringent conditions were met.  However, as these have not generally afforded sufficient flexibility for companies, the DWP is consulting on further draft amending regulations.

The consultation proposes a new option for dealing with an employer debt in a multi-employer DB scheme, the “Flexible Apportionment Arrangement” (FAA).  Where certain conditions are met, it will be possible to use an FAA in any circumstances, not just a corporate restructuring, and no debt will be triggered.

It is also proposed that trustees will have discretion to extend an employer’s “period of grace” (which allows an employer to cease employing an active member of the pension scheme temporarily without triggering a debt), up to a maximum of 36 months.

The consultation closed on 10 August 2011.

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