Boost for charities in multi-employer pension schemes as government changes rules

07 Mar 2018 News

The Department for Work and Pensions (DWP) has announced that it plans to introduce an amendment to pension regulations, which could benefit charities with staff in multi-employer schemes.

Many charities currently have staff in pension schemes also run by other employers, which typically offer a generous "defined benefit" pension, guaranteeing the level of income that employees in the scheme will receive in retirement.

Existing rules mean that when a charity's last member of the scheme retires, they would be required to make a large one-off payment – seen as unaffordable by many charities.

DWP has now said it plans to introduce rule changes from 6 April to allow schemes to give charities and other employers more time to pay when they leave a scheme through a deferred debt arrangement.

However, the changes do not apply to the Local Government Pension Scheme (LGPS), as this scheme is not covered by section 75 regulations.

Many charities are involved in the LGPS as third party employers as they may have taken on local government employees under Transfer of Undertakings (Protection of Employment) Regulations.

DWP consultation

DWP initially consulted on the issue of multi-employer schemes in March 2015, and received 77 written responses to a call for evidence.

The majority of respondents supported a change to section 75 of the Pensions Act to help employers manage debts that arise when an organisation has no more employees in a multi-employer pension scheme and it is required to pay money to leave the scheme, known as “exit debt”.

Employers with a very small number of active members who were approaching retirement feared the consequence of an employer debt being triggered when their last active member retired.

In the light of these responses, the government proposed in April 2017 to allow employers in such schemes to defer their payment of exit fees.

At the end of February 2018, the government announced its intention to introduce the changes on 6 April.

The draft Occupational Pension Schemes (Employer Debt) (Amendment) Regulations 2017 say: “The government is of the view that the deferred debt arrangement will enable employers in a multi-employer pension scheme whose only change in circumstance is that they are ceasing to employ an active member to retain an on-going commitment to the scheme.

“This will be of particular help to smaller employers (such as charities) of non-associated multi-employer schemes in managing any employer debt incurred when they cease to employ an active member of the scheme when for example that member retires.”

'Really significant' 

David Davison, director of Spence & Partners, said the changes should offer charities “really significant additional flexibility” and enable them to pay off existing liabilities before accruing more.

Writing for Civil Society News, he said: “I don’t for a minute expect this to be the end of the story as we of course need to see how things play out in practice.

“As is ever the case, the devil will be in the detail, and we need to see how individual schemes react to the new flexibility and whether they seek to embrace it or look to put up barriers to implementing it.”

He said he expects to see similar changed made to LGPS regulations in the near future as there is “widespread consensus” that the change planned by DWP is “long overdue”.

Andrew O’Brien, director of policy and engagement at the Charity Finance Group, said: “This isn’t everything we wanted, but it is solid progress and will provide a pathway for many charities to stop accruing more pension debt and to get on top of their liabilities.

“We are also pleased that the government has listened to our concerns about the potential barriers that the previous draft regulations could have created for mergers between charities with multi-employer pension scheme debts.

“We believe that the assurances in this response will ensure that the new rules do not create barriers to charities coming together where that makes sense for beneficiaries.

“This has been a long road and we need to make sure that pension trustees make use of the flexibility provided by these new regulations. However, this is good news for charities and demonstrates the value of persistent campaigning with government.”

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