David Davison on the positive changes that have occured to charity pension schemes laws
For charities trapped in multi-employer pension schemes a couple of recent pieces of legislative change may finally provide some welcome new options.
Many charities participate in multi-employer defined benefits pension schemes (MEDBS) such as those with The Pensions Trust, USS and even those in local government pension schemes (LGPS). The problem which many charities face is that they are trapped in these schemes as trying to exit them results in the requirement to pay an unaffordable cessation debt which means they are forced to continue building ever larger benefits and funding them at an ever increasing cost.
This issue has become increasingly well recognised and now, at last, after around 10 years of campaigning, two recently announced changes to legislation may offer some hope to hard pressed 3rd sector organisations.
The first of these changes isThe Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2018.
From 6 April 2018 these regulations will introduce the option of using a Deferred Debt Arrangement (DDA), which will allow employers, whose only change is to cease to employ active members in a scheme, to retain an ongoing commitment to the scheme rather than a cessation debt automatically being triggered.
It is envisaged that future contributions would be set on an ongoing and not cessation basis similar to what would be the position in a standalone scheme or in the event that the scheme as a whole ceased accrual. This should offer charities really significant additional flexibility allowing them to control risk in an affordable way while focusing resource on paying down liabilities already built up rather than building further amounts.
In entering in to a DDA employers would continue to have all the same funding and administration obligations to the scheme as was the case prior to the agreement, which will protect member benefits and indeed other employers participating in the scheme.
Charities will also be affected bythe Local Government Pension Scheme (Scotland) Regulations 2018.
These regulations will be implemented from 1 June 2018 and offer similar options for those charities participating in LGPS via the use of a suspension agreement. The suspension agreement would be negotiated between the LGPS Fund and the admitted body.
Clearly this is very early post the introduction of the new options and it is far from clear how schemes will react in practice. As is ever the case, the devil will be in the detail, and we need to see how individual schemes approach the new flexibilities and whether they seek to embrace them or look to put up barriers to implementing them.
Both sets of changes do undoubtedly provide third sector organisations with potentially greater flexibility and one can only hope the opportunity will be embraced by scheme trustees, administering authorities and employers alike.
David Davison is a financial adviser with Spence and Partners and a member of the Society of Financial Advisers
