Thousands of charities are seriously impacted by the issue through their membership of multi-employer schemes run by the Pensions Trust, Universities Superannuation Scheme, educational schemes, other industry wide schemes and indeed their participation in the local government pension scheme.
The legislation forces employers to continue to build up pension benefits for their members in multi-employer pension schemes, beyond the point at which they are affordable for their businesses. This then places pension benefits and indeed members’ employment at risk. Employers (mostly charities) in these schemes are therefore given Hobson’s choice – keep either funding further unaffordable benefits, or to settle an unaffordable cessation cost, the former usually being the lesser of two unpalatable evils.
There is no doubt that the risks associated with these schemes were poorly communicated to employers when they joined, and indeed even subsequently, however a contractual entitlement has been created and it must be honoured. But, change is necessary to create more flexibility in how these promises are met.
The legislation needs to be changed to allow organisations to stop accruing liabilities, without actually triggering a cessation debt, thereby limiting the extent of the problem and giving them time to pay down what they owe. This is what already happens in stand alone schemes so it is hardly a revolutionary concept.
While this change is undoubtedly needed, this has to be achieved in a way that ensures the pension benefits of the members of these schemes are protected and that liabilities are fairly distributed amongst the sponsors of the schemes. A fundamental element of any change is that historic promises must be met, and must be met in full.
David Davison, Director and head of the Charity & Public Sector Practice at Spence, first started working with Charity Finance Group, and then subsequently with the Pensions and Lifetime Savings Association (PLSA), to lobby Government via Department for Work and Pensions (DWP) for changes to the Section 75 legislation in 2010. He commented “the pace of change has been glacially slow. At the start of 2014, we put forward very detailed proposals to the DWP on how the legislation could be amended to provide the flexibility necessary while addressing the legitimate issues raised by DWP.”
David continues, “we were initially quite optimistic about this but it was placed on hold pending a consultation the DWP ran which ended in May 2015.” To date there have been no findings published from this consultation. In December 2015, at a PLSA event a representative from DWP did confirm that the issue remained “complex” and continued to be “under review” and that findings “would hopefully” be published early in 2016. We still await any findings as the issue continues to be lost amongst a range of ‘more important’ competing issues and the changes in DWP senior personnel over the last 12 months or so.
In summary, David said “I’m not optimistic that any sort of legal challenge will be successful, especially if any proposal was likely to reduce the protection for member benefits. I do however, hope that the Government will get off its hands, have the DWP respond positively to the 2015 consultation and to go look out the proposals the working group made in 2014 from whatever drawer they’ve been deposited in, blow off the dust and examine them afresh. The solution is there without too much necessary input, it just needs a bit of commitment. Unfortunately, given past experience, I’m not optimistic that we’ll get it!!”
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