Section 75 debts—grace periods
Section 75 debts—grace periods

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Section 75 debts—grace periods
  • When can a grace period be used?
  • Circumstances where a grace period cannot be used
  • The grace period notice
  • Length of grace period
  • Effect of a grace period
  • Impact of deferred debt arrangements
  • Where grace period is nullified

One of the dangers of employment cessation events is that they may inadvertently be triggered, eg because the sole remaining active member of an employer in a multi-employer defined benefit scheme has resigned. The Employer Debt Regulations, SI 2005/678 were amended with effect from 6 April 2008 to introduce the concept of grace periods, a concept intended to help the employer manage unintentional employment cessation events.

For more information on employment cessation events and other section 75 triggers, see Practice Note: When is a section 75 debt triggered?

When can a grace period be used?

An employer of a multi-employer defined benefit scheme may notify the trustees that it wishes to enter into a grace period (by way of a grace period notice) if:

  1. that employer ceases to employ active members at a time when at least one other employer employs active members, thus giving rise to an employment cessation event, and

  2. it intends to employ at least one person who is an active member of the scheme during the next 12-month period (or any longer period which the trustees agree to—see: Length of grace period below)

The employer is not required to obtain the trustees' consent to the grace period. However, consent will be required if:

  1. the grace period is to exceed 12 months—see: Length of grace period below, or

  2. if