The government has announced a review of employers’ pension obligations to make it easier for businesses to restructure, an increasingly common scenario in the current economic climate.
The law in question – Section 75 – was passed in 2004 after Danish firm Maersk tried to avoid its UK pension liabilities despite remaining solvent. Since then businesses have been required to clear pension scheme deficits when they face takeover or restructuring.
However, calls from businesses for the law to be reviewed have grown louder as economic difficulties have exacerbated the demands made of employers. While restructuring has grown more likely, falling stock markets have increased companies’ pension shortfalls.
"The huge cost of defined benefit pension schemes is a particular problem for employers,” says Jonathan Mansfield of employment solicitors Thomas Mansfield. “Our experience is that such schemes are increasingly rare outside the public sector. It is to be expected that employees with these rights will seek to hold on to them and where necessary litigate, though it is possible that this may leave them with a greater risk of job cuts.”
“There is one area where the protection provided to employees in respect of their pensions remains weak,” Mansfield warns employees. “Where there is a business transfer subject to the TUPE Regulations the level of pension contribution provided by the new employer is capped and may fall far short of the benefits in the outgoing scheme.”
The public consultation is expected to begin in February with changes to be introduced in October 2009.
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