Dealing with employer debts

Under section 75 of the Pensions Act 1995, a statutory debt (called a section 75 debt or employer debt) may become due from an employer of an underfunded defined benefit occupational pension scheme in certain circumstances. One of the key aims of the legislation is to prevent solvent employers abandoning underfunded pension schemes.

Section 75 debts are calculated on a buy-out basis. This is the basis which reflects the cost of buying out pension liabilities with an insurance company. It is an onerous basis, which means that section 75 debts can often be very expensive for employers.

Ways of dealing with a section 75 debt

Where a section 75 debt has been triggered and unless the employer is in a grace period or has entered into a deferred debt arrangement, the default position is for the employer in relation to whom the debt is triggered to pay the debt in full.

However, where the section 75 debt is triggered as a result of an employment-cessation event, the employer can also deal with the debt:

•
through an apportionment arrangement, or
•
through a withdrawal arrangement

For

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