Commenting on the DWP’s consultation on new employer debt regulations, Chris Hawley, Associate at Barnett Waddingham, said: “We are happy government has recognised there are issues here, and welcome any additional flexibility for employers to manage pension debts in ‘business as usual’ situations where the solvency of the employer is not in question. On the face of it this seems like a helpful easement for employers looking to manage the increasing cost of defined benefit pension accrual and the eventual wind down of their schemes. Although in reality many employers may be able to achieve a similar result within the guidelines of the current debt regulations.
“However, it is concerning that under this proposal trustees would be given the power to trigger a substantial cash payment down the line, representing a loss of control to the employer. The proposed test – if trustees deem it likely that the covenant will weaken in the next 12 months – is not tightly defined. For example, how many trustees would call in the debt amidst the uncertainty being created by Brexit?
“If government does not re-consider this particular trigger, employers may instead decide to keep employing active members to avoid giving trustees what would be in effect a very strong negotiating stick.
“Regardless of whether the changes proceed, employers need to carefully consider what their obligations are and how those obligations may change over time. Monitoring can help employers looking to exit non-associated multi-employer schemes (NAMES) spot opportunities to do so at an affordable time.”
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