Pension trustees: Know your scheme employer

Updated August 2011

The Pensions Regulator has published a new statement applying to trustees of defined benefit (DB) schemes. From November 2011, it will be mandatory for trustees to name the statutory employer in the scheme return. They must identify which employer or employers have a legal obligation to support their scheme.

See Related links for more information from The Pensions Regulator.

Who is the statutory employer?

The statutory employer of a scheme will be the employer, or employers of a multi-employer scheme, legally responsible for:

• Meeting the scheme funding objectives of the pension scheme
• Paying the “section 75 debt”. This is a requirement under the Pensions Act 1995, which may occur following an employment cessation event when an employer leaves a multi-employer scheme; on scheme wind up; or on employer insolvency. The employer is required to buy out member benefits with annuities from an insurance company and make up any shortfall in the scheme assets
• Triggering entry to a Pension Protection Fund assessment period on insolvency.

The Regulator is concerned that as more DB schemes are closing to accrual, the risk increases of a scheme being left without a statutory employer. In particular, this can occur where there has been employer group restructuring or scheme transfers.

What are the key issues?

Where schemes are still open to future accrual, with active members, it should be straightforward to identify the statutory employer. However, where employers have left the scheme in the past or where schemes are closed to future accrual and have no active members, then the identification of a statutory employer may become problematic. This issue is particularly complex in multi-employer schemes.

Next steps

Trustees need to:

• liaise with employers to identify those who potentially meet the statutory definition of sponsoring employer;
• review employment records, scheme deeds, employer contributions and past scheme accounts;
• where employers have left the scheme, check that they have discharged their statutory debt by paying any section 75 debt that was due to the scheme, or have entered into an apportionment or withdrawal arrangement; and
• where relevant, check that employers have signed a deed of cessation of participation.

Once the trustees have gathered all the relevant information, they need to decide which employer or employers are sponsoring employers of their scheme. The Pensions Regulator has stated that if trustees are unsure about the statutory employer of their scheme, they should seek legal advice.

Trustees must know their scheme statutory employer by November 2011, in order to complete their scheme return correctly.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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