Charities trapped in multi-employer DB schemes

David Davison

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Spence & Partners, the UK pension actuaries and administration specialists, today shared their concerns that more charities will become trapped in multi-employer pension schemes with damaging liabilities unless government amends Section 75 legislation.

In March of this year, the Department for Work and Pensions (DWP) were seeking views on the operation of the employer debt regime for non-associated multi-employer defined benefit schemes in a call for evidence which closed in May. As of yet no proposals have been made and the DWP website warns that it was published under the Coalition government and therefore might not be a priority for the current regime.

David Davison, head of public sector, charities and not-for-profit practice at Spence & Partners, commented: “Charities are given Hobson’s choice – legislation forces them to keep either funding further unaffordable benefits or to settle an unaffordable cessation cost. Both the schemes and the legislation provide participants with no flexibility, placing them at risk and also putting other scheme participants and their staff at increased risk.

“We support the S75 legislation where it applies to associated employers, however, for non-associated employers such as charities it is frequently at odds with the interests of sponsoring employers, members and indeed the schemes themselves. It is also totally inconsistent with the flexible approach adopted by standalone and segmented schemes, as well as unfunded public sector schemes, where organisations can leave without there being any cessation debt payable.”

Davison added: “Charities have frequently tried to address the issues with schemes but have been presented with no palatable alternatives. It has become very clear that the only option to resolve clear unfairness and inconsistency, applicable particularly to non-associated employers in multi-employer pension schemes, is a revision in the legislation. While it is going to be hard to achieve change because of so many vested interests, it would lead to a positive impact on charity employers and their schemes. They could then get on top of liabilities and reduce further exposure – these schemes are not looking for special treatment or exemptions – they want to see reform. A sweeping list of recommendations emerged from responses to the consultation but it is not yet clear what help the government will offer charities, if any.”

David Davison

Post by David Davison

Specialist consultant on pensions strategy for corporate, public sector and not for profit employers

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