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IVAN WALKER, SOLICITOR
AUTHORISED AND REGULATED BY THE SOLICITORS REGULATION AUTHORITY. REGISTRATION NUMBER 462700
Ref: IFW/GFTU/17/01
Trustees of the GFTU Pension Scheme
26 April 2017
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.