THE owner of a Perthshire plumbing business has hit out at the trade organisation that directed him to join industry pension scheme Plumbing Pensions, claiming it led him into a situation that he believes has rendered his business worthless.

Legislation introduced in 2005 means businesses paying into multi-employer schemes like Plumbing Pensions are left exposed to so-called Section 75 debts.

These liabilities, which do not represent debts in the sense of unpaid bills, can be repeatedly triggered in multi-employer schemes, with the method used to calculate them resulting in vastly inflated figures. As reported in The Herald last month, retired Inverness businessman Murray Menzies has been hit with a £1.2 million bill despite making all the payments required of him while still trading.

READ MORE: Retired plumber fears financial ruin over £1.2m pension scheme debt

Yet despite the implications of the 2005 law change, Ray Smith, who runs Auchterarder-based plumbing firm Modern Developments, said industry body the Scottish and Northern Ireland Plumbing Employers’ Federation (Snipef) did not make him aware of the Section 75 issue when it encouraged him to sign up for the scheme in 2008. At that time both Snipef and the pension scheme were run by the same chief executive - Robert Burgon - and a condition of joining Snipef was that members had to enrol their staff into either Plumbing Pensions or an unspecified scheme that offered the same level of benefits.

“I joined the pension scheme as a sole trading business in 2008, three years after the legislation came into effect,” Mr Smith said.

“There was no notification or anything in the pension material that such a thing as Section 75 employer debt affected the pension scheme.

“It wasn’t until 2016, through another plumber - not Plumbing Pensions or Snipef - that I heard about Section 75.”

The Section 75 legislation was designed to ensure pensioners are not left high and dry if their employer goes bust, but it requires employer debts to be triggered every time there is a change to a business’s structure as well as if an employer ceases to have any employees.

READ MORE: Only a change to the law can save our members, Plumbing Pensions boss says

The sums due are hugely inflated because they must be calculated on a buy-out basis - which requires pensions to have a far greater level of funding than if they were being valued on an ongoing basis - and because in multi-employer schemes current employers must take responsibility for all the scheme’s liabilities. Although there are just 350 firms associated with Plumbing Pensions now, it has been used by over 4,000 employers over the years.

The result of this is that Mr Smith cannot sell or pass on his firm without triggering a potentially ruinous debt. He believes he should have been warned about the likelihood of that happening prior to joining Plumbing Pensions.

“Unwittingly, without having the knowledge, I’ve tied myself into a debt for life,” he said. “The only way I have of getting out of it is hoping that between now and the day I die I don’t trigger it.”

Mr Burgon, who resigned from both Snipef and Plumbing Pensions in 2016 and is now a court clerk at the Worshipful Company of Plumbers, did not respond to a request for comment.

Snipef said that it “acknowledged” that Mr Burgon had been employed by both it and Plumbing Pensions between 1988 and 2016, but its current chief executive Fiona Hodgson said the federation had not known what the impact of Section 75 would be until three years ago.

“It was not until April 2016 that Snipef became aware of the full implications of Section 75 for participating employers following a meeting with the scheme trustees,” she said.

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“At this point Snipef employed a pensions lawyer to advise on the potential impact on employers. We also began to provide regular communications, by email, written correspondence and face to face, to ensure affected Snipef members understood the complexity of the situation. We continue to provide ongoing guidance and support to our members.”

Plumbing Pensions, on the other hand, had been aware of the 2005 change to the law and the implications it could have for its members. It did not, however, communicate this or attempt to collect any Section 75 debts prior to 2016 because it had been lobbying the Government for an exemption to the law. It was only when it became clear that the scheme would not receive an exemption that it began contacting employers about their potential debts.

Kate Yates, who succeeded Mr Burgon as Plumbing Pensions chief executive in 2016, said the scheme had not made members aware of the issue before then because its remit is to invest assets and pay member benefits and not to provide advice to employers. She added that the scheme “represented a good option for employers” in 2008.

READ MORE: Plumbing firms now ‘worthless’ due to impact of pension laws

“In 2008, the plumbers industry scheme was providing excellent retirement benefits for workers in the plumbing and mechanical services industry,” she said.

“Employer debt legislation was already public policy and the appropriateness of the scheme would depend on the priorities of a particular employer. At the time [Mr Smith] joined the scheme, there was a scheme rule that an employer could use to mitigate the impact of Section 75 employer debt legislation.”