Share

DWP proposals will cause chaos for charities

DWP proposals will cause chaos for charities
Blogs

DWP proposals will cause chaos for charities

Finance | David Davison | 18 Jul 2012

David Davison looks at why thousands of charities will be hit with an unforeseen pension deficit under new changes from the Department for Work and Pensions.

There’s an old adage “if it looks like a duck, waddles like a duck and quacks like a duck, it’s probably a duck.” Unfortunately, where this relates to pensions that duck is probably a chicken with a limp and a sore throat! The decision of the DWP to look to revise the definition of a money purchase pension arrangement as part of the Pensions Act 2011, following the “Bridge” legal case at the end of 2011, has caused untold chaos as organisations who thought they had a defined contribution pension arrangement with a fixed cost and no deficit risk turned out to have a defined benefit pension often with a very significant deficit. Oops!

Under the Bridge case the Supreme Court effectively decided that just because a scheme could build up a deficit, it didn’t mean that it couldn’t be a defined contribution arrangement. The DWP took the contrary view that schemes which provide any sort of underlying guarantee or provide pensions directly from the scheme are effectively defined benefit schemes. Even though the legislation isn’t officially in place at this point in time, given that the DWP want to carry out some consultation, everyone needs to act as if it is in place as the DWP confirmed that it will have a retrospective effect.

This has seriously impacted on thousands of charitable organisations as part of the Pensions Trust Growth Plan arrangement, and around 1,700 in particular who participate solely in the Series 3 section of this Scheme. Many of these have been hit with either a deficit for the first time or a substantially increased deficit. How can this be you may ask?

Well, GP3 provides an underlying guarantee that the asset value for any member can’t fall, so it needs to return at least 0.7 per cent per annum just to cover contract charges. To make sure the scheme was in a position to do this and not create a deficit the assets were invested in very low risk deposit type investments. It is this underlying guarantee which means that the scheme has now effectively become classified as a defined benefit scheme. Not surprisingly this has been a bit of a shock to a number of participants, particularly those who were allowing staff to use the scheme to pay additional voluntary contributions, as despite not paying any contributions to the scheme the employer has inherited a pension deficit, and for many a significant deficit at that!

The issue here isn’t so much that GP3 participants have built up a substantial debt, as they couldn’t have given the investment basis of the Scheme, but rather that because of the ‘umbrella’ nature of the Scheme those in GP3 have inherited part of the ‘true’ DB deficit attributable to those employers in GP1 & GP2. Clearly the situation is at its most severe for those who are just in GP3 as they will be picking up increased liabilities. The position is less clear cut for those employers with GP3 and GP1 and/or GP2 liabilities as there may be some offsetting of the increase in GP3 liabilities with a reduction in GP1 and GP2. The true position will only be apparent if organisations analyse how their liabilities are split.

Interestingly as part of the DWP’s proposals they said they would look at “consequential or transitional provisions to avoid adverse consequences.” I can’t really see much more significant adverse consequences!

The Pensions Trust has made some proposals for the future although clearly they are not providing participants with advice or recommendations. There are undoubtedly some options open to organisations to deal with the situation, but they would be very much based upon each individual set of circumstances. Organisations need to begin to consider these as quickly as possible to try to avoid the position deteriorating further.

In addition, hopefully the Pensions Trust will be highlighting with the DWP just how “adverse the consequences” of their actions have been and looking to see if anything can be done.

Comments

[Cancel] | Reply to:

Close »

Community Standards

The civilsociety.co.uk community and comments board is intended as a platform for informed and civilised debate.

We hope to encourage a broad range of views, however, there are standards that we expect commentators to uphold. We reserve the right to delete or amend any comments that do not adhere to these standards.

We welcome:

  • Robust but respectful debate
  • Strongly held opinions
  • Intelligent relevant discussion
  • The sharing of relevant experiences
  • New participants

We will not publish:

  • Rude, threatening, offensive, obscene or abusive language, or links to such material
  • Links to commercial organisations or spam postings. The comments board is not an advertising platform
  • The posting of contact details for yourself or others
  • Comments intended for malicious purpose or mindless abuse
  • Comments purporting to be from another person or organisation under false pretences
  • Gratuitous criticism, commentary or self-promotion
  • Any material which breaches copyright or privacy laws, or could be considered libellous
  • The use of the comments board for the pursuit or extension of personal disputes

Be aware:

  • Views expressed on the comments board are left at users’ discretion and are in no way views held or supported by Civil Society Media
  • Comments left by others may not be accurate, do not rely on them as fact
  • You may be misunderstood - sarcasm and humour can easily be taken out of context, try to be clear

Please:

  • Enjoy the opportunity to express your opinion and respect the right of others to express theirs
  • Confine your remarks to issues rather than personalities

Together we can keep our community a polite, respectful and intelligent platform for discussion.

Tags

David  Davison

David Davison is head of public sector, charities and not-for-profit at Spence & Partners, director of Dalriada Trustees and Civil Society Media's dedicated pensions blogger.

Ian Allsop (60) John Tate (53) David Davison (49) Robert Ashton (41) Tania Mason (24) Andrew Hind CB (17) Gordon Hunter (17) Daniel Phelan (14) Vibeka Mair (12) David Ainsworth (11)
David Philpott (10) Gareth Jones (8) Celina Ribeiro (8) Niki May Young (8) Rui Domingues (8) Andrew Chaggar (5) James Brooke Turner (4) Sir Stuart Etherington (4) Kate Sayer (3) Jeremy Swain (3) Garreth Spillane (3) Alistair Gibbons (3) Ian Clark (3) Claris D'cruz (2) Stephen Lloyd (2) Richard Maitland (2) Adrian Beney (2) Iain Pritchard (2) Pauline Broomhead (2) Daniel Fletcher (2) Martin Brookes (2) Tesse Akpeki (2) Nick Brooks (2) Stephen Hammersley (2) June O'Sullivan (2) Dan Corry (2) Peter Holbrook (2) Belinda Pratten (2) Simon Steeden (2) Jonathan Bruck (2) Dan Gregory (2) Mark Astarita (1) Don Bawtree (1) Sir Stephen Bubb (1) Victoria Cook (1) Lindsay Gray (1) Rachel Holmes (1) Nick Ivey (1) Iona Joy (1) John Kelly (1) Michael King (1) Heather Lamont (1) Lucy McLynn (1) Chris Oulton (1) Julian Rathbone (1) Socrates Socratous (1) Richard Weaver (1) Karl Wilding (1) Richard Williams (1) Roger Chester (1) Matthew Bowcock (1) Joe Saxton (1) Reuben Turner (1) Martin Farrell (1) Paul Gibson (1) Becky Slack (1) Jonathon Grapsas (1) Andrew Scadding (1) Simon Hebditch (1) Su Sayer (1) Debra Allcock Tyler (1) Martin Birch (1) Mark Hallam (1) Jonathan Lewis (1) Sara Llewellin (1) John Low (1) Dame Mary Marsh (1) Ruth Murphy (1) Colin Nee (1) Julia Unwin (1) Kate Rogers (1) Malcolm Hayday (1) Filippo Addarii (1) Kimberley Scharf (1) Jakes Ferguson (1) Jessica Sklair (1) Joe Turner (1) John May (1) Julian Blake (1) Rosie Chapman (1) Andy Williamson (1) Malcolm Hurlston (1) Andrew Samuel (1) Chester Mojay-Sinclare (1) Paul Amadi (1) Kirsty Weakley (1) Luke Fletcher (1) Peter Mitchell (1) Billy Dove (1) Andrew Ketteringham (1) Jackie Turpin (1) Lynne Robb (1) Jonathan Crown (1) Paul Emery (1) Ruchir Shah (1) Pesh Framjee (1) Sukhvinder Kaur-Stubbs (1) Moira Protani (1) Vicki Prout (1) Michael O'Toole (1) Dawn Austwick (1) Lisa Clavering (1) Paul Farmer (1) Neelam Makhijani (1) Logan Anderson (1) Andy Rich (1) Sharon Martin (1) Asheem Singh (1) Leigh Daynes (1) Abdurahman Sharif (1) Lynne McMahon (1) Richard Caulfield (1)
Less +++ More +++

Popular Tags

Why I didn’t accept an ice bucket challenge

1 Sep 2014

With one survey out last week indicating that more than half of the people taking part in the #icebucketchallenge...

Embedding digital in a traditional organisation

29 Jul 2014

The Children's Society has been creating a digital culture. It hasn't been easy, but it has been worth...

Look before you leap when it comes to cloud technology

7 Jul 2014

If you are going to invest in cloud technology, John Tate has some words of advice – take time first...

Too much focus on reputational risk?

28 Aug 2014

Risks must always be weighed up against potential benefits, says Dorothy Dalton.

It's time for the sector to front up and prove it has nothing to hide

19 Aug 2014

The sector's representative bodies must be bolder in telling the Charity Commission what they think of...

Film of the week: OneMinuteJr by Unicef Ukraine

15 Aug 2014

Unicef Ukraine has released a series of one minute videos created by children caught up in the conflict...