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Charities in Pensions Trust scheme face increased deficits

Finance | Vibeka Mair | 21 Dec 2011

The Pensions Trust has written to charities in its Growth Plan 3 scheme, warning that they could now face significant liabilities on leaving the scheme thanks to a recent court case.

Pensions experts are warning that charities affected could face increases ranging from tens of thousands to hundreds of thousands of pounds.

Previously the Pensions Trust’s Growth Plan 3 was considered a “money purchase” scheme but following a recent court case, the Department for Work and Pensions (DWP) has ruled that where it is possible for a deficit to arise in a scheme, that scheme cannot be regarded as “money purchase”.  The DWP will introduce retrospective legislation to reflect this.

Now the Pensions Trust has written to charities in the scheme saying when the retrospective legislation is introduced, Series 3 will be designated as a defined benefit arrangement, which will potentially increase an employer’s exposure to any debt on withdrawal. 

Around 670 charities belong to the Growth Plan 3 scheme, including some of the largest charities in the UK.

There will also be changes to how the whole Growth Plan’s deficit is allocated amongst employers.

There are four schemes in the Growth Plan – Series 1, Series 2, Series 3 and Series 4.

The letter says employers with a significant proportion of Series 1 and 2 liabilities will see a reduction in their share of the deficit. However, those employers with a higher proportion of Series 3 liabilities will see an increase.

David Davison, a consultant at actuaries Spence and Partners, who advise various charities in the scheme, said he was speaking to charities in Series 3 who were considering legal action in reaction.

He said the increased deficit that Growth Plan 3 employers face is as a direct result of the Pensions Trust re-apportioning deficits in Growth Plan series 1 and 2 to employers in series 3.

Davison added that some charities in the scheme just had staff paying in, and now the organisation could face a deficit as a result.

The letter stated that the last actuarial valuation of the whole Growth Plan, which represents 1,700 charities, was carried out on 30 September 2008. At that time the assets of the Growth Plan amounted to £742m and the liabilities were £770.6m, resulting in a deficit of £28.6m and a funding level of 96 per cent.

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