More consultation on the consultation

by Alistair Russell-Smith   •  
Blog

My wife kindly bought me a great stocking filler book for Christmas called “Universally Challenged” which lists some of the most bizarre answers people give when competing on TV quiz shows. A few examples were:-                           Q: In books written in English each line is printed and read starting at which side of the page? A: The right Q: What ‘T’ are people who live in a house paying rent to a landlord? A: Terrorists Q: What was Ghandhi’s first name? A: Goosey Now there’s little doubt that the incentive of all that cash, the pressure of being under the studio lights and the inquisitorial gaze of the likes of Anne Robinson and Jeremy Paxton, not to mention Vernon Kaye, Bradley Walsh and Jamie Theakston induces a high level of panic, not to mention complete brain freeze in some cases. I’m not sure however what excuse some people have for giving the answers they have when they’ve had lots of time to think about them. Unfortunately the DWP provided a similarly disappointing answer for many charities in the results of their consultation on Employer Debt

which were published just before Christmas in the snappily titled “Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2011 - S.I. 2011/2973” This review offered a ray of hope that the inequity many charities face which prevents them from controlling the build up of liabilities in their pension scheme and forces them to continue funding unaffordable benefits could be addressed.  Unfortunately no, or possibly more accurately, not yet. The response to the consultation provides some specific comments as follows:-

8 (a). Employers in charitable and voluntary sectors. Some respondents raised concerns about non-associated employers, particularly not-for-profit and charitable employers. These employers would not be assisted by many of the easements available for dealing with an employer debt. Where an employment-cessation event occurred to such an employer the only options were to pay the debt or to use the period of grace. As many of these employers could not pay an employer debt, they had to continue to participate in the scheme in order to avoid one triggering. One respondent suggested that to help these employers, no debt should trigger on ceasing to employ an active member where the employer continued to meet its scheme funding obligations. 9. The Government recognises that some non-associated employers can face problems with an employer debt. The extension to the period of grace, which is provided for by these regulations, was prompted by representations from such a group. However amending the employer debt requirements so that no debt is payable where scheme funding obligations continue to be met would be a much bigger step and would need to be carefully considered. For example, member protection would need to be considered carefully. This would be a change that would go much wider than the subject matter of these regulations and the Government would want to carry out a further consultation.

So a bit of bad news, good news! The bad news is that nothing is going to be done at the moment but there is the option for the Government to carry out further consultation and at least there is at last recognition that this is a major issue. Unfortunately the response shows a fundamental misunderstanding of the issue of member security as LGPS, and similar multi-employer schemes such as those run by the Pensions Trust and others, are all ‘last man standing’ arrangements. If an employer becomes insolvent then the debt is picked up automatically by the other participants so the member is fully protected. Even if the whole scheme sector collapses the PPF would provide protection, however this is massively unlikely as has been recently recognised by a reduction in the PPF levy for some of these schemes. So the likelihood of a scheme of this type failing is negligible. Allowing employers to continue to build liabilities which they cannot afford makes this less the case. If an employer exits and makes a contribution over time in excess of the on-going funding level (e.g. at cessation level) then the on-going funding position of the scheme as a whole improves so members are better protected. In addition, other employers are at a lower risk of having to assume responsibility for liabilities for higher risk employers – particularly the case for public bodies such as local authorities who are effectively standing guarantor as things stand at the moment. Paradoxically both the participating organisations and those administering the schemes recognise the need for these organisations to be able to exit on affordable terms but both are being hamstrung by inappropriate legislation, a piece of legislation which incidentally recently won a poll as the worst piece of pensions legislation . This is a very significant issue for many charities and its rectification can no longer be delayed. For example, many charities participating in LGPS will undoubtedly shortly be receiving news of further contribution increases as a result of updated actuarial valuations and the organisations affected need to have options. So if you’re affected by this, lobby your MP, correspond directly with the Pensions Minister, Steve Webb, or make your voice heard through any representative bodies available.

Further reading

Is your DB scheme an asset rather than a liability?

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