Deferred Debt Arrangement

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Section 75 Employer Debt
Deferred Debt Arrangement

Due to the Scheme closing to future accrual a Deferred Debt Arrangement is no longer available.

Introduction

When an employer in a multi-employer scheme has a cessation event, under UK law, the employer is liable to pay a Section 75 Employer Debt. It may be possible in certain circumstances to defer the trigger and subsequent payment of a Section 75 Employer Debt by entering into deferred debt arrangement.

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What is a Deferred Debt Arrangement (a “DDA”)?

Put simply, a DDA is a legal agreement which defers when a section 75 employer debt is triggered when there is an employer cessation event. While the DDA is in place, the employment-cessation event is deemed not to have occurred.

A DDA requires the agreement of the Trustee. Only employers that intend to keep trading and offer financial support to the Scheme for at least the next 12 months can apply for a DDA.

For full details on DDAs see ‘The Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2018`.

What is the criteria for an DDA?

Trustees can agree a DDA if:

the Scheme is not in a PPF assessment period or being wound up;
the Trustee is satisfied that the Scheme is unlikely to go into a PPF assessment period in the next 12 months; and
the Trustee is satisfied that the employer’s covenant is unlikely to weaken materially in the next 12 months.

The Trustee must be satisfied that the employer’s ability to finance the Scheme is unlikely to weaken materially in the next 12 months beginning with the date on which the DDA takes effect. In order to ensure this test is passed, the Trustee relies on its professional advisors. Employers that request a DDA will need to complete a short questionnaire. The completed questionnaire will be reviewed by the advisors so they can prepare a report for the Trustee.