Under the Pensions Act 1995, s 75, 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.
The Occupational Pension Schemes (Employer Debt) Regulations 2005, SI 2005/678 (the Employer Debt Regulations) contain further provisions setting out when a section 75 debt is triggered, how it is calculated and the different methods of dealing with a debt.
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.
The Pensions Act 1995, s 75 and the Employer Debt Regulations (together the ‘section 75 debt regime’) apply to all occupational pension schemes except:
money purchase schemes, and
schemes listed in the Employer Debt Regulations, SI 2005/678, reg 4(1)
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