THE owners of two Scottish plumbing firms have spoken about the devastating effect membership of an industry-wide pension scheme has had on their businesses, noting that they have been rendered worthless due to an unintended consequence of legislation designed to protect pensioners.

Under rules brought in in 2005, businesses that are sold or wound up are required to pay one-off sums into their employees’ defined benefit pension to ensure it has enough money to pay their full future entitlement.

Due to a loophole in the legislation these so-called Section 75 payments are continually triggered in multi-employer schemes such as the Plumbing & Mechanical Services (UK) Industry Pension Scheme - better known as Plumbing Pensions - with anything from a change in ownership structure to no longer having an employee paying into the scheme making individual employers liable.

READ MORE: Plumbers asked to pay potentially ruinous pension debts

The sums do not represent money that has been withheld from the scheme, but rather, in the case of Plumbing Pensions, a proportion of the amount of money the fully funded £2 billion scheme thinks it may need to ensure it can pay the full pensions of its 35,000 members.

Plumbing Pensions has not collected any Section 75 payments in the 14 years since the legislation changed, but is now seeking to do so and is in the process of writing to 100 Scottish firms with the aim of collecting sums that could be as high as several million pounds.

The owner of one north-east plumbing firm, which pays employer contributions of around £40,000 into the scheme each year, said that despite taking action to ensure his business is not immediately hit with a Section 75 demand, in reality the problem has just been “kicked down the road”.

Having initially joined the firm his father started, the business owner said a Section 75 payment was triggered when the company converted in a “seamless transaction” from a partnership to a limited company in 2006.

Though the scheme did not inform him of this, he was told in 2014 that the sum due at that time would have been in the region of £850,000.

Having taken out a flexible apportionment arrangement, he will not have to make a Section 75 payment as long as he and his wife continue to own the business, but a new owner will, making it impossible for him to sell the firm or pass it on to his children.

“No one in their right minds would take on a pension liability like this and if I wound it up it would immediately trigger a debt that would be several million pounds,” he said. “It’s untenable - 34 years of hard work in the business are worthless.”

The owner of a firm based in Perth, meanwhile, said that because a Section 75 payment would become due if she sought to pass on, sell or wind up her family’s “small limited company”, her business too “has become worthless”.

READ MORE: Plumbers group hits out at handling of potentially ruinous pension fund debts

She also noted that those employers still associated with the pension are being unduly impacted by the scheme’s earlier decision not to collect any debts when they were triggered.

“As it’s a last man standing scheme, millions of pounds of orphan liabilities from companies which have gone bust or folded over the last 10-plus years are falling to us remaining companies in the scheme,” she said.

Plumbing Pensions chief executive Kate Yates said previously that the scheme did not seek to collect Section 75 payments in the past because it thought it would be disproprotionately expensive to do so. The scheme was also involved in lobbying government for a change to the legislation in relation to multi-employer pensions.

After The Pensions Regulator said in 2014 that neither a change to the law nor a special exemption for the plumbers’ scheme was likely, Plumbing Pensions began the process of gathering the data required to calculate how much individual employers owed.

Currently 350 businesses contribute to the scheme - 160 of which are based in Scotland – although around 4,000 have used it since it launched in the 1970s.