Charities have chance to shape debt regime in multi-employer pension schemes

The Department for Work and Pensions (DWP) has issued a call for evidence about ways of managing employer debt in non-associated multi-employer pension schemes.

The call follows the number of concerns that have been expressed by stakeholders – including the Charity Finance Group (CFG) – about the way in which the employer debt regime operates in such schemes.

Non-associated multi-employer arrangements

A non-associated multi-employer pension scheme is a scheme in which a number of non-associated employers participate under a single trust arrangement. Such schemes, which operate on a non-sectionalised basis, have proved popular with charities in particular because of the opportunity to pool risk and share costs.

The section 75 problem

However, participation in this type of scheme creates the following issues for a charity participating in a non-associated multi-employer pension scheme:

• If a charity wishes to cease the future accrual of defined benefits for staff in the scheme and offer alternative DC arrangements, this will trigger an immediate payment – a so called  ‘section 75 debt’ – by the charity into the scheme. The section 75 debt is the amount owed by the charity to the scheme to settle its liabilities on a buy-out basis in full. For many, these debts are unaffordable.
• If a charity can no longer meet its liabilities to the scheme through insolvency, these so-called ‘orphan liabilities’ are picked up by the remaining charities in the scheme under what has become known as the ‘last man standing’ rules.  

We highlighted last year the significant impact that the employer debt regime has on charities, such as the high profile cases of the Enniskillen Trust and the Wedgewood Museum.  

CFG has raised awareness of the problems for charities in participating in non-associated multi-employer schemes in its report published in June 2014 ( Navigating the Pensions Maze 2014 ). Since then it has been calling on the Government to recognise that pensions  are one of the central risks to the long-term sustainability of the charity sector and to review the employer debt legislation as it applies to charities (see:  Pension Manifesto 2014).

The call for evidence

The DWP is seeking views on whether amendments should be made to the current employer debt regime (see : DWP: Section 75 employer debt in non-associated multi-employer defined benefit pension schemes: call for evidence (12 March 2015)). In particular, the DWP has noted that not all of the easements currently available under legislation around debt payment would be relevant to non-associated employers, and is seeking views on the effectiveness of the three current easements that would be applicable (namely the withdrawal arrangement, the approved withdrawal arrangement and the period of grace). The DWP has also suggested three new possible mechanisms to ease the burdens on employers in non-associated schemes.

Responding to the Call for Evidence

The DWP is keen to stress the reason why the current employer debt regime exists and the risks associated with changing these rules. However, we welcome the DWP’s call for evidence as an opportunity for charities to share their experiences and concerns with lawmakers on a matter which is of increasing importance for them as they navigate the pensions maze.

Responses should be submitted by 22 May 2015 to [email protected].