Bulletins | December 18, 2014

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[1] which 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.


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.


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 that a section 75 debt could be assigned. In reaching his conclusion, the judge referred to the 2002 High Court decision in Bradstock[2] which had decided that a trustee could compromise a section 75 debt with an employer.

Mr Justice Birss took the view that assigning a debt was less detrimental than compromising a debt given that an employer would still remain liable for the debt following an assignment. Further, on a straightforward analysis, as drafted, section 75 contained no express provision prohibiting the assignment of a section 75 debt nor were there any apparent public policy reasons as to why a section 75 debt should not be assignable. Indeed, as the judge noted, a scenario in which a trustee reasonably and honestly believed that it had secured the largest amount possible by assigning a section 75 debt arguably furthered the purposes of section 75.

New Regime

Whether the conclusion that a section 75 debt could be assigned under the old section 75 regime could survive the PA04 changes formed the basis of separate consideration. As Birss J noted, the PA04 changes were designed to head off the mischief of companies seeking to offload their pension liabilities on the Pension Protection Fund. Accordingly, PA04 amended section 75 and introduced the moral hazard provisions now found in sections 38-51 of PA04. The overall effect of these amendments was to cast the net wider bringing those “associated or connected” with a scheme’s participating employer within the scope of the Regulator’s moral hazard powers.

Amongst those new provisions were powers permitting the Regulator to require that trustees refrain from taking steps to recover a section 75 debt pending recovery of all or part of that same debt under a contribution notice. Clearly, a power restricting trustees’ ability to enforce a section 75 debt was inconsistent with trustees being able to freely assign such debts. What then was Parliament’s intention in conferring such a power on the Regulator?

Well, one of the arguments the Court considered was whether the Regulator’s power to direct trustees to refrain from enforcing a section 75 debt was designed to ensure fairness between the competing interests of the pension scheme (seeking to recover the section 75 debt) and the employer’s other creditors. If this interpretation were correct,  then allowing a trustee the prospect of double recovery (first by way of assignment and second under a Regulator issued contribution notice) seemed inequitable. Whilst this argument had its merits, Birss J concluded that such an interpretation was inconsistent with Richards J’s findings in the Storm Funding[3] case.

In Storm Funding, Richards J reasoned that the PA04 introduced a new regime distinct and separate from that of the section 75 debt framework. Under the new PA04 regime, the Regulator (in practice the Regulator’s Determinations Panel) was responsible for exercising discretionary powers to impose financial obligations on parties associated or connected to the participating employer. Those financial obligations arose in the form of financial support directions (“FSDs“) and contribution notices (“CNs“) which would be treated as separate liabilities from a section 75 debt. Therefore, there was no apparent link in terms of quantum between a section 75 debt and financial demands made under a CN or FSD.

Applying the judge’s reasoning in Storm Funding, Mr Justice Birss was able to conclude that:

  • The Regulator’s powers to direct that trustees refrain from seeking to enforce a section 75 debt introduced by PA04 did not alter the nature of the section 75 debt itself.
  • The moral hazard provisions in PA04 were not designed to ensure fairness for the employer and its other creditors so as to prevent the pension scheme from achieving double recovery.
  • The mischief of the scheme’s double recovery arose regardless of whether or not a section 75 debt could be assigned. This was because FSDs and CNs could be issued after an insolvent employer had already paid a dividend to the scheme in relation to the section 75 debt. In addition, the sums paid as dividends could not be recovered from any recipient of a subsequent contribution notice and a pension scheme was not under any obligation to repay the sums it had received by way of dividend.


This is an insightful and helpful judgment which is of real significance to pension scheme trustees. The ability to assign a section 75 debt now offers trustees the possibility of winding-up a pension scheme before a participating employer’s administration has concluded, putting an end to delays and additional costs which should result in a better outcome for members. Trustees will need to ensure that in assigning a section 75 debt they act in members’ best interests but provided they take appropriate advice there is no reason why they shouldn’t proceed.

[1] The Trustees of the Singer & Friedlander Limited Pension and Assurance Scheme v Richard Panton Corbett [2014] EWHC 3038 (Ch)
[2] Bradstock Group Pensions Scheme Trustee Ltd v Bradstock Group Plc and others [2002] ICR 1427
[3] Storm Funding Ltd (In Administration), Re [2014] Bus LR 454