UP TO a hundred Scottish plumbing businesses face paying potentially ruinous bills in order to ensure a pension scheme they may no longer have any connection which has enough money to meet its future obligations.

The multi-employer Plumbing & Mechanical Services (UK) Industry Pension Scheme is seeking to recover so-called Section 75 debts from a total of 200 employers, half of whom are based in Scotland and many of whom no longer employ any scheme members.

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The money is being collected from the owners of businesses that have exited the scheme either because their firm has ceased trading or the staff they were contributing for have left their employment, with individual sums expected to range from a few thousand to several million pounds.

The scheme’s chief executive Kate Yates said the debts are due under legislation introduced in 2005 that was designed to protect pensioners whose employer had gone bust. The debts have been repeatedly triggered in the plumbing scheme due to the high number of employers that have used it over the years.

“Unfortunately employer debt legislation is a case of well-intentioned legislation having unintended consequences because the sums of money employers are being asked to pay are quite large,” she said.

“We have a staggering amount of orphan liabilities, which relate to employers who are no longer contributing - about 4,000 employers in total have used the scheme.

“A debt is triggered when an employer winds up, goes insolvent or when their last employee leaves the scheme, but some that have triggered a debt may still be contributing to the scheme.

“A number of employers are very small and might only have one or two plumbers. They might have someone leave and then have a gap before someone else joins them - that gap would trigger a debt.”

Up until now the scheme has not collected any of these debts, with Ms Yates noting that its trustees, who had lobbied the Government for a change in the law, previously felt the cost of doing so would be disproportionately high. They are looking to collect the debts now because the scheme, which has 9,000 members in Scotland and 26,000 in the rest of the UK, is expected to close to future accruals later this year.

Fiona Hodgson, chief executive of the Scottish and Northern Ireland Plumbing Employers’ Federation (SNIPEF), said the move has “naturally raised serious concerns for our members”.

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“The impact of Section 75 has the potential to be devastating for local businesses and the wider community, with the possibility of huge Section 75 debts looming over businesses who were simply trying to be good employers by providing a pension for their employees,” she said.

Affected businesses will start receiving demand letters between now and the end of June, although Ms Yates said that the scheme does not intend to collect every debt it issues a notice for. Where the sums are small, for example, it will be unlikely to seek payment.

Meanwhile, the 350 firms that currently contribute to the £2 billion scheme, 160 of which are based in Scotland, will have to find alternative pension arrangements for their employees if the scheme closes to future accruals this summer as planned.

Peter Mutch of law firm Aberdein Considine said that in addition to sourcing a defined contribution pension for their staff, employers will have to arrange benefits such as death in service cover that have until now been provided by the defined benefit scheme.

Changes are being made to the pension because, while it has the funds to meet all its existing liabilities, contributions from non-retired members would have to rise significantly in order for it to honour any further accruals.

Trade union Unite is refusing to back the plan until it gets assurances about the level of contributions employers will pay into an alternative scheme.

Its representative Bernard McAulay said: “This has been the jewel in the crown of pension schemes in the construction industry.

“Our members have contributed to it, they are very proud of it and it’s something they don’t want to lose.

“We’re doing our best to make sure that what comes into being goes a long way to matching the industry standards.”