There's no sense in burying your head in the sand when it comes to pensions, David Davison says, the sooner the matter is broached, the fewer the implications.

Time undoubtedly moves more slowly in pensions than in other spheres. However, the difficulty is that these time delays tend to create a vacuum which make decision-making all but impossible. As I’ve blogged previously – “Charities being discriminated against – your chance to respond” -  charities are being faced with the “can’t afford to stay in, can’t afford to get out” Hobson’s choice in respect of their pension provision.

I’ve very recently worked with a number of charities which have had merger plans scuppered by their pension scheme even though all the other operational and financial issues stacked up. The problem is that many charities have clubbed together to provide pension benefits for staff but have discovered that the collective experience may not be everything they’d hoped. Legislation covering these ‘multi-employer’ schemes does not offer participants the same flexibility in terms of ceasing provision as would be the case in a stand-alone arrangement. Should an employer wish to exit the scheme they will be faced with the prospect of paying the exit debt as a single lump sum. The exit debt will be many times the size of that disclosed in their accounts (if disclosed at all) and will be unaffordable for the vast majority. This forces organisations to continue to participate in schemes despite the recognition that it is not in their financial interests to do so. 

Merging organisations with different pension arrangements can be complex, and not surprisingly organisations without defined benefit liabilities are unwilling to assume those of another organisation as part of any restructure. The option to pay off the liabilities for the vast majority is unaffordable.

Somewhat ironically Lord Hutton in his report on Public Sector pensions called for non-public sector employers to no longer be eligible to participate in public sector schemes. Many such employers would like to be in a position to exit but find themselves unable to do so. The issue has been raised as part of a recent consultation on Section 75 being carried out by DWP however at this stage it is unclear when the research findings will be issued and if any suggestions for change will be adopted.

There are undoubtedly options open to organisations but early engagement with the issues is essential.

Organisations confronted with this issue should also be making their voice heard by the pensions minister, Steve Webb, either directly or through any representative groups in which they participate. For the good of the sector the status quo cannot be allowed to continue.