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Pension Schemes: driving charities into liquidation?

Pension Schemes: driving charities into liquidation?

The Department for Work and Pensions has asked for evidence relating to employer debt regimes for non-associated multi-employer pension schemes. The Charity Finance Group has been quick to respond that a change of law is needed, citing reports of charities going into liquidation as a result of a significant pension deficit.

In a non-associated multi-employer pension scheme (the “scheme”) all sponsoring employers share risks and liabilities. However, if an employer leaves the scheme (due to the scheme winding up, the employer becoming insolvent or the employer ceasing to employ any members of the scheme) an ’employer debt’ is triggered. Under the current rules the employer must pay an upfront lump sum of the difference between the scheme’s assets and their proportion of the liabilities at full buy-out price.

The Charity Finance Group has also expressed dissatisfaction with the current rules because of their damaging effect on potential mergers. A charity (which is a member of the scheme) who wants to merge with another charity may find that the automatic triggering of the employer debt will outweigh the money that would otherwise be saved through the restructure. This prevents some mergers from going ahead where the financial climate and other circumstances are such that a merger should be encouraged.

One potential solution, which is endorsed by the Charity Finance Group, allows employers to “freeze” the scheme by withdrawing all members without triggering the debt. Employers could then negotiate a flexible repayment plan. We will continue to monitor progress on this issue.

For additional information on charity pension schemes, charity finance matters or to discuss your other requirements please contact our experienced charity lawyers today on 01895 207809 or email charities@ibblaw.co.uk.