Charities consider legal action over pension deficit ruling

Stephen Nichols of The Pensions Trust tells them they could face a bill if they leave their pension scheme

Stephen Nichols, chief executive of the trust
Stephen Nichols, chief executive of the trust

Charities are considering legal action against the pension scheme provider The Pensions Trust after being told they could face significant costs if they withdraw from one of its schemes.

The trust has written to charities saying that a recent court case was likely to affect organisations that belonged to its multi-employer pension scheme called Growth Plan 3. About 670 charities belong to the scheme.

Charities joined the scheme believing that it was a "money purchase" scheme in which employees benefit based only on the contributions they and their employers put in. They believed employers could not be liable for a deficit.

But the Department for Work and Pensions has announced that following a recent court case it plans to introduce retrospective legislation that is likely to reclassify the scheme as a "defined benefit" pension, in which case employers would be liable for any shortfall.

Stephen Nichols, chief executive of the trust, has sent a letter, seen by Third Sector, to charities in the scheme saying they could now face a bill if they decide to leave.

Nichols’ letter said that charities in Growth Plan 3 could also be liable for some of the historic liabilities of Growth Plans 1 and 2, which are defined benefit schemes that are part of the same group of funds.

About 1,700 charities belong to the Growth Plan, which has total assets of £742m and a deficit of £28.6m. Charities in the plan include some of the largest in the UK, including the British Red Cross and Oxfam.

One lawyer, who asked not to be named, said she had been approached by a charity member of the scheme looking for advice on launching a legal challenge.

She said her client had been told it faced a deficit of almost £1m, and was considering whether it could challenge the trust’s interpretation of the law.

David Davison, a consultant at pensions firm Spence & Partners who is also advising a charity considering legal action, said the news was likely to leave many charities in a very difficult situation.

"Many of the employers don’t even pay contributions to the scheme," he said. "It was just a way to help employees make contributions.

"Now, employers find they are liable for a deficit – one that in many cases they would find it quite difficult to pay. That seems unreasonable."

A trust spokeswoman said it had taken legal advice and was confident its position was correct.

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