BGCM EC May 2017

Ref: IFW/GFTU/17/01

26 April 2017

Trustees of the GFTU Pension Scheme

Section 75 debts: what happens when there are no active members?

Introduction

The minutes of the 19 January 2017 meeting record that:

It was noted in passing that should the one remaining active of the GFTU scheme for any reason leave the scheme that an automatic section 75 debt would occur and a substantial payment by the GFTU would be required. The secretary requested that this item be considered further at a subsequent meeting.

In fact I do not think you are running the risk that you fear, and this note is intended to explain why.

Section 75 debts

It has been the case since 1997 that if a pension scheme is wound up in deficit, the sponsoring employer is obliged to make up the deficit before the wind-up is completed. This debt, owed by the employer to the trustees, is known as a “section 75 debt.” In times past the debt was measured as the shortfall in the minimum funding requirement or MFR. Without going into the detail, a debt calculated on the MFR basis was rarely going to cover the cost of buying out all benefits in full by purchasing annuities. Since 2003 however the debt is calculated as the full cost of buying matching annuities. The section 75 debt can therefore be very substantial indeed. That applies if the scheme is wound up. Special provisions need to be made, however, for multi-employer schemes. One employer might leave the scheme but the scheme itself might continue in relation to other employers – so there is no winding-up which could trigger a section 75 debt.

IVAN WALKER, SOLICITOR AUTHORISED AND REGULATED BY THE SOLICITORS REGULATION AUTHORITY. REGISTRATION NUMBER 462700