A Green Light For Pension Trustees To Assign Their Section 75 Debts?

We write to update you on the recent High Court decision in Singer & Friedlander v Corbett 1which considered the circumstances in which a section 75 debt could be assigned and which provides a detailed insight into the co-operation of the section 75 debt regime and the Pensions Regulator's moral hazard powers.

Section 75

As you know section 75 of the Pensions Act 1995 ("section 75") forms part of the statutory funding regime relating to occupational pension schemes. A section 75 debt imposes a debt obligation on an employer participating in a defined benefit scheme where a relevant trigger event occurs. When a trigger event occurs, the participating employer becomes liable for some or all of the shortfall in the scheme's funding. Section 75 has existed in various forms over the years, initially as section 58B of the Social Security Pensions Act 1975, then subsequently consolidated into section 144 of the Pension Schemes Act 1993 before being enacted as section 75 of the Pensions Act 1995 from 6 April 1997.

Background

Kaupthing, Singer & Friedlander, was one of the early victims of the credit crisis entering into administration on 8 October 2008. The bank ran a defined benefit scheme which at the time of the administration was in deficit resulting in the triggering and calculation of a section 75 debt. The bank's administration progressed over a number of years during which various dividends were declared and paid to the scheme's trustee. Eventually, the only rationale for keeping the scheme in operation was to collect any future dividends before the administration closed.

On advice, the trustee concluded that the best option might be to assign and sell the debt to a third party before winding the scheme up rather than hold out for the remaining dividends which in any case were uncertain in amount. The trustee filed a Part 8 claim asking for the Court to confirm that a section 75 debt could be assigned. If it could be assigned, the Trustee sought a further declaration that the proposed assignment was one which in the circumstances a reasonable and properly advised trustee could enter into in exercise of its powers.

Decision

In a lengthy and at times complex judgment Birss J considered the position of assignability under both the section 75 regime as enacted under Pensions Act 1995 and the revised section 75 regime introduced by the Pensions Act 2004 ("PA04"). On an analysis of the old regime the Court had little difficulty in finding...