The chief executive of the Charity Finance Group has said that charity pension issues need to be addressed before the “pension time bomb explodes and undermines the sector’s ability to raise funds.”
CFG has published a ‘Pensions Manifesto’ setting out key items it wants addressing in the run up to the next general election and beyond. Alongside this, its report on ‘Navigating the Charity Pension Maze’ offers practical guidance (and a useful map) to help charities navigate pension issues. Our pension experts look at matters arising from these documents below.
Public sector pension schemes
The report states that for charities taking on contracts in the public sector, a good understanding of the relevant regulatory framework is needed as there is a huge amount of detail that can trap the unwary, including as regards pensions, which is beyond the scope of the report. We can help you with this. We regularly advise employers on public sector pensions and have previously considered some of the issues that charities face when they participate in schemes, such as the Local Government Pension Scheme.
CFG’s Pensions Manifesto recognises the need for local authorities and charity contractors to consider who will be responsible for managing specific elements of the risks associated with providing access to the LGPS. In particular, it recommends that charities only be made responsible for the service period of their employees and the continued salary link on their past service liabilities. Charities contracting with local authorities need to take action to make this happen. It is important that charities undertake thorough due diligence before taking on any outsourcing contract, the outcome of which might mean that, in some circumstances, a contract is not taken on at all.
When employees do transfer to a charity from a local authority and the charity joins the LGPS, the primary liability to pay all contributions due under the LGPS regulations rests with the charity. This means that they will be liable to fund past service liabilities that exist at the transfer date, but relate to benefits accrued during the transferring employees’ service with the local authority. Charities therefore need to ensure that their outsourcing contract provides for any past service liabilities to be funded by the previous local authority employer. Doing so will enable charities to begin their participation in the LGPS with a ‘clean slate’.
Private sector pension schemes
We considered the issues that charities participating in private sector defined benefit schemes can face here. Speaking at the launch of the CFG’s report, the Pensions Minister, Steve Webb, indicated that he hoped to be able to change the rules so a charity would not trigger a employer debt if they closed their scheme to future accruals by members. This is one of the things that the Pensions Manifesto asks for and would be welcomed, particularly as charities planning their approach to auto-enrolment may want to change the schemes they offer.
Closing a private sector multi-employer defined benefit scheme to future accrual will not trigger a debt if all employers stop accrual at the same time. However, particularly in sector-wide schemes, not all employers may stop accruing benefits at the same time, as the decision on what future benefits to provide will be one that each employer takes separately. We frequently advise on making changes to future pension provision, including the statutory consultation requirement that applies to particular changes and how best to deal with any employer debt issues.
Do therefore consider how you are ‘Navigating the Charity Pension Maze’. For more information on Pension please contact Christopher Nuttall on 01604 463134 or click here to email Christopher. For more information regarding our Pensions services click here.