David Davison says charities must act now to convince the government to change the law.
Last month the Department for Work & Pensions launched a call for evidence on ‘Section 75 Employer Debt in Non-Associated Multi-Employer Defined Benefit Pension Schemes'. If you can get past the impenetrable title this is actually a really important document for the sector and I would urge charities who participate in schemes of this type to make their views known to the DWP.
For a number of years now representative bodies such as Charity Finance Group (‘CFG’) and the National Association of Pension Funds (‘NAPF’), as well as specialist pensions advisers to the sector, have been in discussions with the DWP about the unfair nature of the legislation applying to these schemes which provides charities with the Hobson’s choice of either settling an unaffordable cessation/exit debt to stop building up liabilities or to continue to build liabilities well beyond the point where they are affordable, placing many charities in financial peril.
In these meetings the DWP continued to express disbelief at the extent of the problem, despite the case studies presented by the professional advisers and representative bodies which attended, and sought to explore every possible option which would avoid the need to change the legislation, something which was felt would be a complex process with a significant risk of unexpected consequences. Over numerous meetings over a number of years all these alternatives were explored and rejected leaving us, to a great extent, back at square one with a need to change the S75 legislation.
Helpfully NAPF made some detailed proposals to the DWP how the legislation could be changed towards the end of 2014. These proposals outlined how the S75 legislation could be improved without the need for amendment of the primary legislation, which represented a much simpler and more workable process.
It is significant in my view that this is a ‘call for evidence’ rather than a ‘consultation’ as the DWP is really looking for justification for the effort needed to change the legislation through the collection of first hand evidence from charities adversely affected by the current approach.
I would therefore encourage employers in multi-employer schemes to respond by 22 May 2015 if you participate in a scheme where:-
- You would like to stop accrual of future defined benefits but have been unable to do so;
- You would have liked to settle your debt but were unable to agree affordable terms with the pension scheme;
- You have been prevented or restricted from conducting sensible corporate activity, such as a merger or corporate restructure;
- You have changed your structure (e.g. incorporated) or have run out of active scheme members and as a result have inadvertently triggered a debt;
- You (and potentially others) have looked to close the scheme to future accrual but been unable to do so as a number of other participating employers in the scheme wanted to continue;
- You have considered using the previous ‘easements’ brought in at the start of 2012 such as periods of grace, withdrawal or apportionment agreements but found them too complex in practice.
A one-time opportunity for change?
These responses should provide the DWP with the evidence they need to pursue the necessary changes. This is a great opportunity to change unworkable legislation, achieve consistency between standalone, segmented and multi-employer schemes and ensure something more suitable is put in place for the future which will help numerous organisations in the sector.
Caron Bradshaw, chief executive of CFG, last year stated that she felt that pension deficits were the most significant issue currently facing the sector and this is an excellent opportunity to look to address some of that risk. It may well be an opportunity which will not present itself again so the sector really needs to engage and ultimately look to take full advantage.
What do I need to do to make my views heard?
Details of how to send a response and to who are in the DWP document and you must respond by 22 May 2015 at the latest. I would strongly encourage organisations to do so.