The unpaid contributions that are preferential debts are employee contributions to an occupational pension scheme that have been deducted from the employee's pay during the last four months preceding the relevant insolvency date but that have not yet been paid over by the employer to the scheme, and unpaid employer contributions in respect of the 12-month period preceding the relevant insolvency date.
Under the Pension Schemes Act 1993 the trustees of a scheme can claim a payment in lieu of certain unpaid employee and employer contributions from the redundancy payments directorate of The Insolvency Service, which is an executive agency of the Department of Trade and Industry. Payments are made from the National Insurance Fund and if such a payment is made, the right to recover the relevant contributions from the insolvent employer's estate transfers from the pension scheme to the Secretary of State. Any sum owed on account of a state scheme premium is also a preferential debt.
All other amounts due from an insolvent employer to a pension scheme are unsecured. This includes debts due under section 75 of the Pensions Act 1995,which provides a mechanism for the trustees to be able to take action to pursue a statutory debt due from employers to defined-benefit schemes in certain circumstances including the insolvency of the employer.