Employer seeks £265,000 in damages from Plumbing Pensions

Kamco, a plumbing and heating services company, argued in its summons that Plumbing Pensions — the administrator of the Plumbing & Mechanical Services (UK) Industry Pension Scheme — continued to actively promote the pension fund to prospective employers, despite being aware of mounting problems pertaining to orphan liabilities, and did not inform them that they would incur liability for Section 75 debt should they join the scheme.

Pensions Expert has reported previously on the long-standing issues with the scheme’s management of Section 75 debts and orphan liabilities.

Under Section 75 of the 1995 Pensions Act, employers in multi-employer schemes become liable for employer debt when they leave the scheme or cease trading. 

There may be a possibility that Plumbing Pensions will be willing to have discussions with us to find a sensible compromise

Keith MacBain, Kamco

Should they fail to pay, it becomes what is known as an orphan liability and the scheme’s remaining employers are burdened with it.

While this might not be a problem for multi-employer schemes with a number of large employers participating, the 1995 legislation seemed not to account for the possibility that small traders may be caught up in the same situation.

The Plumbing scheme has 350 employers remaining in it, out of 4,000 that have been through the plan since its inception.

Many of those remaining employers are small traders, and they have been saddled with orphan liabilities amounting to £1.6bn, threatening a number of small, unincorporated plumbing business owners in particular with bankruptcy and the prospect of losing their homes.

Several employers have written letters of complaint to the scheme over its handling of Section 75 employer exit debts, which the scheme only began collecting in 2019 despite regulations requiring collection since 2005.

Delays caused ‘havoc’

“As a result of the defender’s breaches of duty the pursuer will suffer loss and damage, which, but for the defender’s breaches of duty, it would not have suffered,” the Kamco summons stated. 

“If the defender had complied with its aforementioned duties, the pursuer would not have participated in the scheme. It would have made alternative pension arrangements for its employees that would not have exposed it to liability under Section 75.”

During the time Kamco was a participating employer in the scheme, it paid contributions on behalf of its employees totalling £107,455. Then, in April 2019, Plumbing Pensions estimated that it had incurred Section 75 liabilities worth £260,576.

Kamco is asking for a payment by Plumbing Pensions of £260,576 with an interest rate of 8 per cent a year, from the date of the citation until that payment has been made. 

It also demands that Plumbing Pensions pay Kamco “any amount for which it is liable under Section 75” by way of damages.

Keith MacBain, managing director of Kamco, told Pensions Expert that the summons had been filed because of the “havoc” caused by Plumbing Pensions’s failure to inform employers about its inability to collect Section 75 debt.

“The Pensions Regulator knew what Plumbing Pensions were doing, and on March 17 2014 told them that they should advise incoming employers about the Section 75 liability. We had at that time signed up to start with Plumbing Pensions in April 2014. They should have complied with TPR’s instructions but didn’t.”

A Plumbing Pensions spokesperson said: “The action has just been served, the trustee company is taking legal advice and the matter is subject to the trustee’s petition at the Court of Session.”

TPR did not act ‘with any delay’

Mr MacBain shared with Pensions Expert the response he received to a complaint filed with TPR.

It stated: “On March 17 2014, we wrote to the trustee raising our concerns regarding the Section 75 debt issue, including how this risk might affect new employers that might join the scheme. These concerns were raised in the historic context of being told that the trustee could not calculate Section 75 debts.”

In June 2014, the trustee said that it had taken action “pending discussion with the regulator”, which included suspending trade press advertising and not enrolling any new employers.

“While it is obviously regrettable that the scheme did not close to new employers prior to Kamco joining, we do not consider that we acted with any delay or that we failed to ensure that the trustee followed instructions,” TPR’s response continued. 

“Rather, we prompted the trustee to revisit the Section 75 issue and close the scheme to new employers.”

Though Plumbing Pensions has closed to new employers, this has not, paradoxically, stopped new employers from joining. In April, the company reported that, while one solvent employer had wound up and nine employers had entered insolvency, three new employers were admitted to the scheme.

A Plumbing Pensions spokesperson told Pensions Expert: “Over the year to April 5 2021, three new employers joined the scheme following flexible apportionment arrangements.

“An FAA is a legitimate legal mechanism that permits an employer to transfer their pension liability from one legal entity to another with the trustee’s consent,” they said.

Using scheme assets against employers?

Pensions Expert reported in March last year that Plumbing Pensions, bracing for legal battles with employers about its acknowledged failure to manage Section 75 debts and to communicate properly with employers, had filed a petition with the Court of Session to allow it to use scheme assets to fund its legal battles.

“The trustee is currently seeking directions from the Scottish Courts about whether it can rely on the indemnity in the scheme rules to cover expenses in relation to Section 75 employer debt-related matters,” the Plumbing Pensions spokesperson said.  

“The trustee’s petition has been delayed by Covid-19 and the resulting court closures, so we are still awaiting the outcome.” 

The Court of Session heard the petition on Friday, and is now considering its response.

“I appreciate that there are no apparent funds to pay us should we win a case against them, so I am not sure what the endgame is,” MacBain said.

“There may be a possibility that Plumbing Pensions will be willing to have discussions with us to find a sensible compromise.” He added that he intends to lodge a complaint with the Pensions Ombudsman.

Governance failures and miscommunication

Pensions Expert reported in February on Jon Bridger’s appointment to chair the Plumbing & Mechanical Services (UK) Industry Pension Scheme.

He acknowledged that the scheme had failed to communicate the problems it was having with Section 75 debt to its employers, and explained the governance review undertaken in September last year, which he said would help address the problem going forward.

He also argued that the issue came about because the data was not available for trustees to calculate Section 75 debt when they needed it.

“I think everyone recognises its impact on funding and liabilities. But it was also clearly an issue for us in terms of administration and the administration system, and the ability to actually calculate those debts,” Bridger said at the time.

He argued that the complexity of the data operation was largely responsible for the long delay between the enactment of the regulations in 2005 and the scheme chasing the debt from 2019.

Plumbing Pensions has previously told Pensions Expert that the trustee is still bound to follow the law as it is written.

Speaking to Pensions Expert in February, a spokesperson said: “Unless the law changes, the trustee must continue to pursue Section 75 employer debts where it is possible to make a recovery without incurring costs which are disproportionate to the amount likely to be recovered.

“The trustee has spent considerable time improving its member and employer data and internal systems so that employer debts can be calculated accurately and fairly.”