Debts Stop Plumbers Pulling Plug On Pensions

Plumbers saving for retirement are not so buoyant now they have found they could drown in debt when they wind up their businesses.

Thousands of small plumbing firms that want to pull the plug on working, but now find they could face massive pension debts.

The problem impacts 36,000 small businesses with £1.5 billion tied up with Plumbing Pensions (UK) Ltd.

The pension scheme was set up to offer small plumbing businesses a specialist retirement service in 1975.

Ticking time bomb

However, Scottish nationalist MP Peter Wishart has revealed technical rules listed under Section 75 of the Pensions Act 1995 could make plumbers liable to the debt due to complicated buy-out rules that stress test the scheme.

Under the rules, the trustees must have enough assets to buy annuities that cover each saver’s full rights under the scheme, which means calculating the buy out amount to maintain this status quo each time an employer leaves the scheme.

So, for plumbers want to leave or retire while the scheme is underfunded must pay in cash to make good their share of the deficit.

“Many plumbers have been unaware of this ticking time-bomb, busy getting on with their work of fixing our heating and it is vital that we look at all the options to resolve this matter,” said Wishart.

Millions of small firm pensions at risk

“So many plumbers are being caught up in the unintended consequences of the measures, which mean that many plumbers wishing to wind up their businesses must accept the employer’s share of the shortfall in the scheme on a buy-out basis based on the hypothetical situation that the whole pension scheme is wound up and had to buy annuities for all its members.”

The MP explained the government had agreed to review the plumbers’ pension problem.

However, Section 75 does not only impact plumbers, but any other retirement scheme set up under the same multi-employer pension rules.

The Pensions Regulator demands all employers should be aware of the rules and insists trustees should ensure they are followed to the letter.

The regulator has powers to stop employers from trying to escape their debt obligations when winding up or leaving a pension scheme.