Employer debt regime

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.

Which schemes does the section 75 debt regime apply to?

The Pensions Act 1995, s 75 and the Employer Debt Regulations (together the ‘section 75 debt regime’) apply to all occupational pension schemes except:

  1. money purchase schemes, and

  2. schemes listed in the Employer Debt Regulations, SI 2005/678, reg 4(1)

For

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PASA response to FCA’s targeted support consultation calls for industry collaboration on practical solutions

The Pensions Administration Standards Association (PASA) has responded to the FCA’s consultation on targeted support for pension savers, welcoming the initiative but highlighting challenges for occupational schemes. Given that occupational schemes lie outside FCA regulation it makes segmentation complex. PASA stresses the need for tailored segmentation. It urges the FCA to acknowledge scheme diversity and avoid retail-based assumptions, while continuing collaboration with the Department for Work and Pensions. PASA also stresses that schemes may not hold the same data as FCA regulated providers, limiting their ability to deliver targeted support without disproportionate effort, and recommends a flexible framework that reflects operational realities. It also cautions against the risk of misleading guidance for consumers with hybrid pension schemes where defined benefit elements are significant, as guidance that overlooks them can be misleading for savers. PASA also calls for clear boundaries between ‘guidance’, ‘regulated advice’ and any new support strand to avoid regulatory risk. While supporting the development of proportionate and accessible decision-making tools, PASA emphasises the importance of clarity, confidence and collaboration with industry bodies to co-design practical solutions that are actionable and easy to understand, particularly for savers with limited financial literacy.

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