Government to reform rules for charities in multi-employer pension schemes

The amendments are designed to reduce the financial impact on charities that leave such schemes

New rules for pension schemes to come into effect in April
New rules for pension schemes to come into effect in April

The government will reform multi-employer pension schemes to reduce the financial impact on charities that decide to leave them.

Last month, the government issued a response to the findings of the consultation on the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2018, and the proposed changes are due to come into force on 6 April.

The regulations will create deferred debt arrangements that will allow charities to plan how to pay off their debts when leaving a multi-employer pension scheme and stop accruing further liabilities.

Organisations including the Charity Finance Group have previously argued that charities that want to leave a defined-benefit pension scheme could be liable for six-figure "cessation debts", which in some cases could lead to insolvency.

One of the key points raised by the government consultation was what happens when a deferred debt arrangement ended, and whether this triggered an employer debt potentially worth a significant sum of money to the affected charity.

The changes introduced by the government allow for the deferred debt arrangement to end in certain circumstances, such as when the scheme is being wound up. 

But the government also decided not to amend the legislation "relating to the calculation of an employer debt arising as a result of an employment cessation event" because it concluded that the current law offered enough flexibility to deal with the situation.

The government said current law allowed charities to set up appropriate payment plans to ensure a cessation debt did not lead to insolvency and could be paid off over a set period of time.

Andrew O’Brien, director of policy and engagement at the Charity Finance Group, said: "This isn’t everything we wanted, but it is solid progress and will provide a pathway for many charities to stop accruing more pension debt and to get on top of their liabilities."

O’Brien also welcomed government proposals to ensure that charities with multi-employer pension scheme debts were not put off from completing mergers.

"We believe that the assurances in this response will ensure that the new rules do not create barriers to charities coming together where that makes sense for beneficiaries," he said.

"This has been a long road and we need to make sure that pension trustees make use of the flexibility provided by these new regulations. However, this is good news for charities and demonstrates the value of persistent campaigning with government."

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