Charities with employees in local government pension schemes should have longer to pay off debts when they leave and those debts should be calculated on a more generous basis, a recent report has recommended.
Many charities have employees enrolled in one of the UK's local government pension schemes, often because they have taken on employees as part of a contract.
In the past charities have not been able to leave the schemes as they would be faced with a large bill which most could not afford to pay.
The report, Deficit management in the LGPS, was written by PwC and commissioned by the Scheme Advisory Board for local pension schemes - an influential body which helps local government establish how schemes should be run.
Charities which attempt to withdraw all employees from the LGPS are currently asked to make a large immediate payment to the scheme. The payment is calculated on a "cessation basis" which is stricter than the calculation of liabilities if the charity remains in the scheme.
The report says that the current cessation basis is too strong and should be more reflective of what is happening in the wider market.
The report recommends a move from valuing exit debts based on gilt yields to measuring them using the Consumer Price Index.
The report said this would “remove the perceived unfairness that certain LGPS employers are exposed to prevailing market conditions at key events”.
The report says that in some circumstances it can be in the interests of a fund to “allow an employer to exit with weaker terms”.
David Davison, a pensions expert at Spence & Partners, said the decisions was potentially extremely significant for charities.
"This is a significant step to getting fairer treatment for charities in local government pension schemes," he said. "The fact that these recommendations have come from such a respected source makes it difficult to ignore."
He said the next step would be for the Department for Communities and Local Government to accept the recommendations.
If that happened, he said, it would make it likely that individual schemes would have to adopt the proposals. It would also make it easier for charities in other types of scheme - who also face the same problems with cessation debts - to make the case for change.
Additional reporting from David Ainsworth.
