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Government to look into problems caused by multi-employer pension schemes

Steve Webb, the pensions minister, says the Department for Work and Pensions will carry out further work on how to resolve financial difficulties at charities

The Department for Work and Pensions will carry out a study of how to resolve the difficulties faced by charities in multi-employer pension schemes, according to the pensions minister, Steve Webb.

The study was one of a series of announcements made by Webb after a detailed examination of pensions regulations was carried out as part of the government’s Red Tape Challenge programme.

In a statement, Webb said the government would carry out "further work to consider how the current processes relating to employer debt that cause difficulties for charities and others participating in multi-employer schemes could be improved".

Webb also announced the introduction of a duty for the Pensions Regulator to "support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer". The change means that more emphasis will be placed on the needs of employers, compared with scheme members.

The Charity Finance Group estimates that several thousand charities have employees in multi-employer defined-benefit schemes.

Jane Tully, head of policy at the CFG, said the news was a major step forward for charities, many of whom faced serious financial problems as a result of their pension liabilities. "We’re pleased they’ve recognised the seriousness of the issue for those charities that are affected by this," she said.

"We’ve had positive engagements with the Office for Civil Society and the Department for Work and Pensions. While we recognise there’s no silver bullet for this issue, we hope that we can achieve a positive outcome for charities."

Defined-benefit schemes offer a guaranteed payment to retired members. Most are in deficit because rising life expectancy means costs have risen, while underperformance in the stock market means the scheme’s assets have not grown as fast as expected.

Many charities have employees in local government, NHS or Department for Education schemes after taking on public sector employees as part of a contract. Others are part of schemes run by the specialist third sector provider the Pensions Trust or are independent local organisations the have joined the pension schemes of national charities.

Many charities in multi-employer schemes cannot afford to make the level of contributions required for each employee in the scheme – often more than 20 per cent of their salary.

But leaving a multi-employer scheme is extremely difficult because it requires a charity to make up all of its deficit in one go. In addition, when a charity’s debt is calculated for withdrawal purposes, it is usually considerably larger than the shortfall it must meet if it continues in the scheme.

The situation is made worse because many schemes are "last-man-standing" schemes – if an organisation shuts down, any debt it cannot pay is taken on by the other members.

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