Our regular pensions blogger David Davison explains why he believes the Pensions Trust Growth Plan pension scheme should have closed last year.
Anyone reading my blogs will be well aware of the continuing saga that is the Pension Trust Growth Plan and anyone wanting to examine the detail can do so here.
With the on-going issues and uncertainty you really have to question why the Pensions Trust has taken the decision to keep the Plan running and didn’t just close it all together when the issues first arose, or as soon as practical thereafter?
If a multi-employer scheme such as this ceases to accrue benefits for staff of all employers simultaneously then the risk of individual employers triggering an exit debt is removed, except if they chose to do so or in the event of an insolvency. The trustee can continue to collect deficit contributions in accordance with the funding plan and the employers continue to fund any deficit on an on-going basis, potentially over a long period of time. This is a well worn path effectively ‘ring-fencing’ the issue and creating a degree of certainty for the trustees and the employers.
The decision to keep the scheme open has had a number of negative implications:
- Organisations have been forced to come up with convoluted solutions to keep Growth Plan open or face triggering an exit debt which will be an amount considerably above that being funded for on an on-going basis. This has made charities options to consolidate pension arrangements considerably more complex (and potentially costly) and is particularly difficult with auto-enrolment looming for many of the participating employers.
- The looming threat of triggering a cessation debt continues to hang over participants should they not maintain the required active membership numbers.
- Participants have continued to accrue Growth Plan 3 liabilities, with the associated risk, right up until the point where they are automatically being transferred to Growth Plan 4 in October 2013 – so effectively for 12-18 months longer than might have been that case had the decision been taken to close the Plan. This has clearly therefore increased the risk for participants.
- Growth Plan 4 remains under the same Growth Plan umbrella which means that employers could be exposed to further risk should future legislation applicable to these multi-employer schemes change again.
- Employers have been forced to move to the Pension Trust’s ‘Smarter Pensions’ defined contribution solution within Growth Plan 4. This arrangement has no administration or investment track record having only been launched in April 2013. It’s therefore next to impossible to make a valid comparative assessment of using this DC solution in comparison to others available in the market.
- Employers are only being offered an occupation defined contribution solution with no option to use a contract based solution, such as a personal pension, which may be more appropriate for their circumstances.
Essentially employers have been left without any choice other than to continue with Growth Plan in some shape or form even though this may not be in their or their staff’s best interests and indeed may even be an unpopular solution with staff.
Continuing the Plan undoubtedly made commercial sense for the Pensions Trust, given that it tied organisations to them and maintained their contribution levels. However, rather than locking in organisations, had the Growth Plan closed, employers would have had the choice to continue with the Pensions Trust, or not. The Pensions Trust could have offered one of its DC solutions as an option for employers rather than as a 'fait accompli'. This could have been offered on exactly the same terms as provided under the Growth Plan umbrella, and if it is competitive as a solution could have been the scheme of choice where it was appropriate.
Having taken this decision it is not one easily reversed unless there is a sufficient ground swell of opinion identified to make the Pensions Trust re-consider their approach.
Read the Pension Trust's response to Davison here.
