Posts Tagged ‘Charities’

David Davison

They always say that sequels are never as good – well here’s a publication that well and truly proves that adage wrong.  This fourth edition has taken over nine months to compile and provides over 50 pages of invaluable information, compiled by industry experts, which will hopefully allow finance directors, HR managers and CEO’s to find information on the issues which affect their charity and therefore help them get the most from their pension provision.    

I am delighted to have been able to contribute to, and indeed sponsor, the publication of “Navigating the Charity Pensions Maze” produced by Charity Finance Group (CFG) having provided input in the area of Section 75 debts in non-associated multi-employer defined benefit schemes, and providing our experience on how the problems can be addressed.  We believe that this document will provide charities with an invaluable reference guide to the complex pension issues they face.

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David Davison

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:- Read more »

David Davison

Many charities participating in local government pension schemes (‘LGPS’) have been increasingly frustrated by the lack of recognition of the issues they face by the schemes they participate in and, indeed, from Department of Communities and Local Government (‘DCLG’) who oversee them. The issues are not new but there remains an element of denial and finger pointing, and it’s very easy to see how charities could be understandably frustrated.

I often experience a feeling amongst charitable admitted bodies that Councils and LGPS encouraged them to join Funds, without ensuring independent advice was sought or providing any risk warnings about the step they were taking, and have now just abandoned them to their fate. Whilst, to a great extent, the problem has been capped over recent years as admission to Funds has become much more rigorous, this unfortunately does nothing for all those employers admitted before that stable door was closed.

For those employers, LGPS have sat on their hands allowing organisations to continue to accrue liabilities even when they clearly couldn’t afford to do so, and without providing the flexibility to address the issue. Many charities I’m aware of have approached LGPS over many years looking to stop accrual, and arrange a payment plan and were just provided with pay up or keep participating as options. Now, as funding positions have deteriorated and funding costs have increased these same schemes are pointing fingers at these same trapped charities for their inability to be able to continue to participate.

For many charities there is also a growing recognition that Councils have adeptly transferred historic past service liabilities in £millions to them, due to LGPS inability to segregate service between employers and without making employers aware of the impact. This has been hugely expensive for charities and DCLG and LGPS continue to try to ignore this issue and sweep it under the carpet. Indeed, LGPS continue to do this with unsuspecting Academies being a prime example.

A limited number of Funds and Local Authorities have sought to deal with the issues however, the response has been at best patchy and has lacked any level of standardised practice. Indeed these ore enlightened approaches attract a “nothing to do with me” response when raised with pension managers from Funds not employing them and for many admitted bodies they are completely unaware of the alternative options explored and implemented elsewhere. A lack of consistency of approach also means that each exercise needs to be looked at on an individual basis, adding complexity and professional adviser costs when helping charities through the maze.

The Shadow Scheme Advisory Board (SSAB), which was established to encourage best practice, increase transparency and coordinate technical and standards issues for LGPS as well as providing recommendations to Government for future regulation commissioned a report from PWC as part of its deficit management project kicked off in summer 2014.

The report was published in July 2015 and the key recommendations which will be of specific interest for admitted bodies are:

  • More flexibility on when exit debts are triggered. The proposals suggest that debts would not be automatically triggered by the exit of the last member. The paper recognises that some minor changes to regulation will be required.
  • Establishing a maximum level of prudence when calculating exit payments. Currently Schemes tend to use a gilts basis to calculate the exit cost despite schemes not investing assets in this way. This effectively means that employers paying a cessation debt are cross funding other employers who remain. This is recognised as inequitable and is also a discouraging factor for charities wishing to look at an exit. This proposal would effectively reduce cessation debts for those looking to exit the Scheme, for many to a point which may be affordable.
  • Flexible exit arrangements. These could include continuing to pay contributions on an on-going basis for a prescribed period and for employers to pay their cessation debts over a much longer period. This would be extremely welcome flexibility for many small employers and is a more consistent approach with that adopted in the private sector.
  • Employer exit on weaker terms. It is recognised that, in some circumstances, it could be in the interests of the Fund, the remaining employers and the admitted body to allow them to exit on weaker terms and small charities are cited specifically as an example.

These items certainly reflect much of the commentary supplied by charity representative bodies, charity advisers and charities themselves although at this stage they haven’t fully addressed issues around the transition of prior local government liabilities to charities but it is hugely helpful to charities’ positions and it has been a welcome addition to the debate, especially given that it comes from such a reputable source.

Unfortunately however, it has disappeared in to something of a black hole, possibly overtaken by other more pressing global events. The proposals however need to be addressed by the SSAB and implemented by Government and LGPS as quickly as possible. The issues faced have been created by local government, LGPS and the admitted bodies and there needs to be a commitment to co-operatively finding solutions, and a desire to do it soon. Charities need to be vocal with their Funds and local authorities about the issues they face and get them to look to address them positively. Charities should also be working collectively and in conjunction with their representative bodies to make sure their voices are heard.

David Davison

Recognising the many difficulties charities who participate in Local Government Pension Schemes face, a series of really helpful guides have been published over the last few weeks:-

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David Davison

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. Read more »

David Davison

The Pensions Regulator has produced 65 pages of guidance for pension scheme trustees and sponsors on assessing and monitoring the employer covenant. We have provided some generic guidance via the attached link – TPR’s guidance on assessing and monitoring the employer covenant.

Helpfully in Appendix B and C from pages 54 onwards there is specific guidance for not for profit organisations. The key recommendation is that commercial operations and donations need to be considered independently with the guidance providing examples where donation income represents a low and high proportion of overall income. Read more »

David Davison

Spence & Partners latest blog for Pension Funds Online –

Many charities participating in local government pension schemes (LGPS) have been increasingly frustrated by the lack of recognition of the issues they face by the schemes and indeed the Department for Communities and Local Government (DCLG) who oversee them.

The issues are not new but there remains an element of denial and finger pointing and it’s very easy to see how charities could be frustrated. Read more »

David Davison

In March 2015 the Department for Work & Pensions launched a call for evidence on ‘Section 75 Employer Debt in Non-Associated Multi-Employer Defined Benefit Pension Schemes’. This is a once in a generation opportunity for charities to influence government to get legislation which is seriously damaging charities financial viability. I therefore would urge charities who participate in schemes of this type to make their views known to the DWP. I’ve included  a link to an article I’ve written on Civil Society Online and our response to the Consultation which should hopefully help charities with their responses. The consultation closes on 22nd May 2015 so not much time left.

David Davison

With many charities now facing full balance sheet disclosure of their multi-employer pension scheme liabilities for the very first time trying to get a handle on the potential impact can be daunting. We’ve already put together a guide for charities in these schemes which explains the technical details and the key choices charity FD’s are likely to face. In addition we’ve designed a FRS102 liability calculator which will allow organisations to enter their deficit recovery contributions and recovery period and obtain an estimate of the net present value figure they’ll be likely to have to include on their balance sheet. Based upon this the calculator will also provide a proxy figure for a full disclosure equivalent to that calculated currently derived under FRS17.

From this charities should be able to see the potential financial impact and begin to consider if steps need to be taken to protect the balance sheet position. For some the steps could be relatively straightforward however for others, particularly those where this change could have a material impact, and potentially even result in a negative balance sheet, more bespoke action could be required and planning needs to begin early to consider all the alternatives.

The calculator will allow multiple calculations to be carried out, saved and printed and we hope it will provide access to a valuable resource for charities to better understand their obligations.

David Davison

I am delighted to have been able to contribute to, and indeed sponsor, the publication of “Navigating the Charity Pensions Maze” produced by Charity Finance Group (CFG). I believe that this document will provide charities with an invaluable reference guide to the complex pension issues they face.

The document was launched on 10th July 2014 in London by CFG with support from Pensions Minister, Steve Webb and also included the launch of a Pensions Manifesto which highlighted the areas of importance and makes proposals how these issues could be effectively improved or reformed.

The Maze document has taken around 6 months to compile, includes detailed research carried out by CFG and covers a wide array of topics which will hopefully allow finance directors, HR managers and CEO’s to find information on the issues which affect their charity and therefore help them get the most from their pension provision. Read more »

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