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Insight

Chink of light for charities stuck in multi-employer schemes

Many charities participate in final salary schemes for non-associated employers - and some have found themselves in a Catch 22 situation.  They feel that the cost of providing final salary benefits is Many charities participate in final salary schemes for non-associated employers - and some have found themselves in a Catch 22 situation.  They feel that the cost of providing final salary benefits is uneconomic, but they cannot stop doing so and leave the scheme because this will trigger a requirement to pay a lump sum to provide the full cost of securing members' benefits with an external annuity provider, which the charities often cannot afford.

This all stems from legislation introduced to stop employers walking away from their pension liabilities.  But the DWP has become aware of the particular difficulties this creates in schemes for non-associated employers which lack the degree of common interest of multi-employer schemes that apply to just one group of companies, which can manage funding challenges in a more co-ordinated way.

The DWP is calling for evidence about the problems caused by the current requirements for employers that are not associated and how the regulations might be amended to address some of the concerns.

The most obvious solution is to allow departing employers to carry on funding accrued benefits as if they were continuing employers, with an obligation to pay the exit funding only if and when the scheme is wound up.

The DWP has not committed to making any changes.  But this is a welcome step in the right direction.

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