First published in The Herald on 16 October 2019
WHEN Inverness businessman Murray Menzies decided in 2015 to retire and shut down the plumbing firm he had run in partnership with his father, one of the final pieces of admin he had to deal with was signing off from the pension scheme the business had been enrolling employees into since 1975.
Like many in the plumbing trade, William Menzies and Son had been directed to the multi-employer Plumbing & Mechanical Services (UK) Industry Pension Scheme (Plumbing Pensions) by trade organisation the Scottish and Northern Ireland Plumbing Employers’ Federation. The firm paid into it to ensure its small band of employees would continue to receive an income in retirement.
Yet while Mr Menzies had thought that closing down the business would end his association with the £2 billion scheme, which is fully funded on an ongoing basis, he was this year hit with a £1.2 million pension bill that he has no means of paying and which he fears could leave him and his wife penniless.
“The business was a partnership with me and my dad and the pension seemed like a good idea for our employees,” he said.
“Sometimes it was a struggle making the payments because cashflow was always tight, but we trundled on. We normally had about four or five employees so sometimes the cheque would be £800 to £1,000 a month.
“I closed down the business in 2015 and I was quite chuffed when I wrote the last pension cheque for the last employee. I thought that was another thing done.
“Then I got a letter saying I’d triggered a Section 75 debt. My bill is £1,198,300 and there’s no way I can pay it.”
Section 75 debts, which do not represent debts in the sense of unpaid bills, were written into pensions legislation as a means of protecting staff pensions in the event of an employer going bust. They require such employers to make lump-sum payments into their defined benefit pension schemes to ensure there is enough cash to meet all their future obligations.
The problem with schemes like Plumbing Pensions, which has been used by thousands of employers over the years, is that anything from the departure of a company’s final employee to the retirement of its owner will trigger a debt.
The sums due appear vastly over-inflated, particularly when schemes have no deficit, because the law stipulates that they must be calculated on a buy-out basis while existing employer-members must also foot the bill for employers that have already left.
For 71-year-old Mr Menzies, whose own pension income is in the region of £1,100 a month, it is the size of his bill that has come as the biggest shock, with both he and his wife concerned about the prospect of losing their home.
“We built our house in 2009,” he said. “We built it for our pension because we knew our pensions weren’t good; we thought we’d live in it for two or three years then sell it, but we got a few viewers and that’s it.
“The house has been on the market for five years but because of where it is just outside Inverness and the size of it – we built it with the plan to do some B&B – it’s not sold.”
Although the house was originally valued at £600,000, Mr Menzies said if it does sell it is likely to raise in the region of £500,000, half of which would be in his name. He also owns a commercial property valued at £100,000 that he inherited from his father and which he rents out to supplement his monthly income.
While it is clear that selling these properties would not raise enough money to cover his Section 75 debt, Mr Menzies is one of a small number of Plumbing Pensions employer-members that the scheme is bound by the law to chase for payment.
Some employers have been able to make use of so-called easements to avoid paying their bills for now, with both flexible-apportionment and deferred-debt arrangements providing a legal means of setting the debts aside for the time being.
Though Plumbing Pensions chief executive Kate Yates concedes that in effect these mechanisms “push the can down the road”, she said the hope is that by the time they do become due the scheme’s funding position will be such that they will be reduced to zero.
If Mr Menzies had still been working he would not have been able to make use of these easements because his firm was not incorporated. They remain outwith his reach now because he is retired and so cannot change the structure of his business to become incorporated.
“There are a small number of employers where there are no easements that can easily help them. There’s very little they can do,” Ms Yates said.
“We are trying to do everything we possibly can but we are in a tricky position because the advice we are given is that we must issue these formal debt notices because the law says we have to.”
For now, Mr Menzies said he feels he has no option but to sit and wait until the pension scheme summons him to court in a bid to recover the debt, something both he and his wife are finding “very stressful”.
“They have to act within the law, which I can understand,” Mr Menzies said. “But I’m feeling that this can’t possibly happen and my wife is panicking about losing our home and everything else.”