Green Paper asking the wrong questions on multi-employer schemes

David Davison

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Fortunately my expectations for the Green Paper published last week weren’t high which was good as at least I didn’t have to deal with crushing disappointment. I did have some hopes that after a myriad of working parties and consultation on Section 75 and multi-employer schemes over the last few years, that expectant charities at last may see some revelation on an issue that has been dogging the sector for well over a decade. There was indeed a revelation, of sorts! It was just that they needed more consultation!! How could anyone not understand the issues here? The problem isn’t about lack of understanding of the issues, but about lack of will to do something about them.

The commentary on multi-employer DB schemes is contained in paragraphs 400-407 in the ‘Consolidation of Schemes’ section, which is somewhat ironic given that most of the necessary change for multi-employer schemes results in anything but consolidation!!

In point 405 there is one tantalising comment, namely “We intend to consult on a new option employers can consider to manage the employer debt in these circumstances.” Ah, what could this be, and why was it not actually in the Green Paper?

My greater concern is that at the end of the Consolidation section there are three key questions posed in relation to multi-employer schemes:-

i) Should employer debt legislation for multi-employer schemes require full buy-out and for the actuary to assess liabilities for an employer debt by estimating the cost of purchasing annuities?

m) How else could historic orphan liabilities be met if they were not shared between employers?

n) Are new measures needed to help those trustees of an association or employers who could be held individually liable for an employer debt?

In my view, these questions do not really capture the fundamental issues consistently raised about non associated multi-employer schemes, and to some extent the ground seems to have been captured by specific issues which have recently arisen, in relation to the Plumbers scheme. These questions are unfortunately unlikely to elicit answers which will move this issue forward for the vast majority of organisations participating in these schemes, and are just likely to needlessly further delay practical action.

In my view the practical questions that need to be addressed are:-

a) Can the S75 legislation be amended to allow participants in non associated multi-employer DB schemes to cease further accrual without automatically triggering a S75 debt?

Such a move would place participants on an equal footing with those in stand alone or segmented multi-employer schemes and permit them to keep paying to the Funds on an on-going basis, ultimately selecting the time to trigger the debt when it is suitable (and affordable) for them as well as limiting the harmful accrual of further liabilities. CFG and PLSA have already made practical proposals to the DWP in this regard which have been totally ignored.

b) Should legislation be amended to allow trustees of multi-employer schemes to be able to compromise a debt in their scheme (as again can be achieved in stand alone or segmented multi-employer schemes), without the scheme risking losing its PPF status? Surely it is in everyone’s interests who are associated with the scheme to look to achieve maximum recovery of a pension liability.

c) Should LGPS Regulations be amended to also address a) above as well as making it compulsory for Funds to identify where historic liabilities accrued and for these liabilities not to be automatically allocated to the last employer?

This would prevent unsuspecting charities from inheriting significant liabilities for employees’ past service with local authorities, public bodies or other employers and then, on exit, being asked to settle a S75 type cessation debt in respect of them. Hardly equitable!

It is very concerning based on the above that not only is the Green Paper not providing any answers, but it really isn’t asking the right questions.

On the positive side though at least with more consultation I can just re-date and re-submit the last set!

David Davison

Post by David Davison

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