Trade body calls for review of charity pension rules

Multi-employer schemes are generally seen as a way for smaller employers to access economies of scale, but some warn that the costs associated with leaving the scheme may make them expensive for employers.

The likelihood of them getting them all through is low, but all of them need to be on the political map

Patrick Bloomfield, Hymans Robertson

The CFG last week released a report on charity pension schemes entitled Navigating the Pensions Maze 2014.

The report outlines the challenges multi-employer schemes present to charities, such as how many charity employer-members “are trapped in schemes with rising contributions and increasing orphan debt that they cannot afford; they cannot afford to leave either as they will ‘crystallise’ often enormous [section 75] debts. As other employers in such schemes fail, the burden on those remaining increases".

Section 75 debt, or cessation debt, is the debt incurred by an employer looking to leave a multi-employer scheme. It takes into account the cost of buying out, the employers share liabilities and the costs associated with calculating and collecting the debt.

The CFG report said the assumptions used to calculate the section 75 debt are stronger than those used for funding assessments, increasing the liability for the employer.

Caron Bradshaw, chief executive of the CFG, said people could be put off donating if they thought their money would be going to pay for the pension rather than the charity’s chosen cause.

“You are potentially picking up the debts of other employers,” she said. “There’s a tipping point where it could affect our ability to bring in [charitable] contributions.”

She added that around 5,000 charities in the UK were in multi-employer schemes.

Alongside the report the CFG also published a manifesto outlining possible solutions to the seven major pensions challenges faced by charities.

The manifesto proposes a wholesale review of multi-employer scheme governance, alongside updated guidance from the Pensions Regulator on how the statutory objectives apply to not-for profits.

Bradshaw said the regulator’s sustainable growth objectives for schemes were based on commercial imperatives and therefore difficult to apply to charities, but that the regulator was receptive to input.

David Davison, director and owner of consultancy Spence & Partners, who was also a co-author of the report, said a change in regulations regarding section 75 debt may be inevitable. 

“The section 75 is one of those things that may change by default,” he said.

Davison said the CFG had provided the Department for Work and Pensions with revised wording for the section 75 legislation.

He added: “My understanding is that it’s been through the first part of the DWP’s process.”

The CFG also proposed working with the PPF to develop the new levy system to prevent overcharging for charity schemes, as well as calling for more flexibility around local government pension scheme membership when contracting for local authorities.

However, despite acknowledging the importance of each of the challenges, implementing all of the CFG’s solutions could be difficult.

“It’s a really ambitious manifesto,” said Patrick Bloomfield, partner at consultancy Hymans Robertson. “The likelihood of them getting them all through is low, but all of them need to be on the political map.”

He added: “It’s a higher priority for charities than it is for government.”