Kamco, a plumbing and heating services company, argued in its summons that Plumbing Pensions – the pension scheme administrator for the plumbing and mechanical services industry (UK) – continued to promote The pension fund actively reached out to potential employers, despite knowledge of the growing problems associated with orphaned liabilities, and did not inform them that they would incur Section 75 debt liability if they joined the scheme.
Pensions Expert has previously reported on long-standing issues with the regime’s management of Section 75 debts and orphan liabilities.
Under section 75 of the Pensions Act 1995, employers in multi-employer schemes become liable for the employer’s debt when they leave the scheme or cease operations.
Plumbing Pensions may be willing to talk to us to find a reasonable compromise.
If they don’t pay, it becomes what’s called an orphan liability, and the plan’s remaining employers assume the burden.
While this may not be a problem for multi-employer plans in which a number of large employers participate, the 1995 legislation does not appear to take into account the possibility of small traders being caught in the same situation.
The plumbing plan still has 350 employers, out of 4,000 who have followed the plan since its inception.
Many of these remaining employers are small traders, and they have been plagued with orphan liabilities amounting to £ 1.6bn, threatening a number of small unincorporated plumbing business owners in particular with bankruptcy and the prospect of losing their home.
Several employers wrote letters of complaint to the plan regarding its handling of the employer’s section 75 exit debts, which the plan did not begin to collect until 2019 despite regulations requiring collection since 2005. .
The delays caused “damage”
“Due to the defender’s breaches of duty, the prosecutor will suffer loss and damage which, without the defender’s breaches of duty, he would not have suffered,” Kamco’s summons said.
“If the defender had complied with his above-mentioned obligations, the prosecutor would not have participated in the scheme. He would have made alternative retirement arrangements for his employees who would not have exposed him to liability under section 75. ”
While Kamco was a participating employer in the scheme, he paid contributions on behalf of his employees totaling £ 107,455. Then, in April 2019, Plumbing Pensions estimated that it had incurred Section 75 obligations worth £ 260,576.
Kamco requests a payment by Plumbing Pensions of £ 260,576 with an interest rate of 8% per annum, from the date of the citation until such payment has been made.
It also demands that Plumbing Pensions pay Kamco “any amount for which it is liable under section 75” as damages.
Keith MacBain, chief executive of Kamco, told Pensions Expert that the summons was filed due to “damage” caused by Plumbing Pensions’ inability to notify employers of its inability to collect section 75 debts.
“The pension regulator knew what the plumbing pensions were doing and on March 17, 2014 told them they should inform new employers of the Section 75 liability. We then signed on to start with Plumbing Pensions in April 2014. They should have complied with TPR’s instructions, but they did not.
A spokesperson for Plumbing Pensions said: “The action has just been served, the trust company is taking legal advice, and the case is brought to the Trustee’s motion to the Sessional Court.”
TPR acted “with no delay”
Mr. MacBain shared with Pensions Expert the response he received to a complaint filed with TPR.
He said: “On March 17, 2014, we wrote to the Trustee to express our concerns regarding the section 75 debt issue, including how this risk could affect new employers who may be. join the program. These concerns were raised in the historical context where it was said that the trustee could not calculate debts under section 75.
In June 2014, the trustee declared that he had taken measures “pending a discussion with the regulator”, in particular by suspending advertising in the specialized press and by not recruiting any new employer.
“While it is obviously unfortunate that the program did not close to new employers before Kamco joined, we do not consider that we acted late or that we did not ensure that the trustee follow the instructions, ”TPR continued in response.
“On the contrary, we urged the trustee to reconsider the question of section 75 and to close the plan to new employers.”
Although Plumbing Pensions has closed its doors to new employers, paradoxically, this has not stopped new employers from joining us. In April, the company reported that while a creditworthy employer was wound up and nine employers went bankrupt, three new employers were admitted to the program.
A spokesperson for Plumbing Pensions told Pensions Expert: “In the year up to April 5, 2021, three new employers joined the scheme as a result of flexible payout arrangements.
“An FAA is a legitimate legal mechanism that allows an employer to transfer their pension obligations from one legal entity to another with the consent of the trustee,” they said.
Using plan assets against employers?
Pensions Expert reported in March last year that Plumbing Pensions, preparing for legal battles with employers over its acknowledged inability to handle Section 75 debts and communicate properly with employers, had filed a claim. petition to the Court of Session to allow him to use the assets of the regime to finance his legal battles.
“The Trustee is currently seeking instructions from the Scottish Courts as to whether he can rely on the compensation provided in the rules of the scheme to cover expenses related to matters relating to the employer’s debt under the section 75, “said the spokesperson for Plumbing Pensions.
“The trustee’s request was delayed by Covid-19 and the resulting court closures, so we are still awaiting the outcome. ”
The Sessional Court heard the motion on Friday and is now considering its response.
“I understand there is apparently no funds to pay us if we win a lawsuit against them, so I’m not sure when the game ends,” MacBain said.
“Plumbing Pensions may be willing to talk to us to find a reasonable compromise.” He added that he intended to lodge a complaint with the pensions ombudsman.
Governance failures and poor communication
Pensions Expert reported in February on the appointment of Jon Bridger as Chairman of the Plumbing and Mechanical Services Industry Pension Scheme (UK).
He acknowledged that the plan had not communicated the problems it was having with the Section 75 debt to its employers, and explained the governance review undertaken in September of last year, which, according to him, would help solve the problem in the future.
He also argued that the problem arose because the data was not available for trustees to calculate section 75 debt when they needed it.
“I think everyone recognizes its impact on funding and liabilities. But it was also clearly an issue for us in terms of the administration and the administration system, and the ability to actually calculate those debts, ”Bridger said at the time.
He argued that the complexity of the data operation was largely responsible for the long delay between the enactment of the regulations in 2005 and the debt prosecution regime from 2019.
Plumbing Pensions previously told Pensions Expert that the trustee is always required to follow the law as it is written.
A radical change of governance in perspective for Plumbing Pensions
The new chairman of the struggling UK plumbing and mechanical industry pension scheme is set to oversee a radical overhaul of its governance structure, with a focus on the gaps noted in section 75 debt payments.
Speaking to Pensions Expert in February, a spokesperson said: “Unless the law changes, the trustee must continue to pursue the employer’s debts under section 75 when possible. recover without incurring costs disproportionate to the amount likely to be recovered.
“The trustee has spent considerable time improving its data on its members and employers and internal systems so that the employer’s debts can be calculated accurately and fairly. “