ICAS urges further reform to save charities from pension debt
Changes to Local Government Pension Scheme Regulations are not known for setting the heather on fire. However, the Scottish Government has the potential to transform the future prospects of charities as it takes forward plans to update the LGPS (Scotland) Regulations.
Proposed changes have the potential to improve the financial sustainability of charity employers participating in the Scottish Local Government Pension Scheme by enabling them to cease future accrual without an unaffordable cessation debt being imposed on them. However, ICAS believes there is further scope to strengthen the proposals.
Under proposals, put forward by the Scottish Public Pensions Agency (SPPA), LGPS Scheme Funds will have the option of issuing a notice suspending a charity’s cessation debt when the charity’s last active member leaves a Fund. Through a suspension notice, Scheme Funds could continue to permit charities to make deficit contributions on an ongoing basis, which would be more affordable than a cessation basis. Regulations which apply in England and Wales already include the ability for Scheme Funds to issue a suspension notice.
The implementation of changes to the LGPS (Scotland) Regulations, including the power for Scheme Funds to issue suspension notices, is expected in April 2018.
The ICAS Charities Panel and ICAS Pensions Panel has issued a joint response welcoming this proposal and recommending two, additional, alternative approaches which would better balance the needs of Scheme Funds with those of charity employers.
ICAS is calling for:
- Charities to be able to cease future accrual and become exiting employers, triggering a cessation debt that is paid in instalments, in accordance with parameters which are consistent across all Scheme Funds based in Scotland. In effect paying down the debt over a period of time that is affordable to both charities and Scheme Funds. At present there are no centrally set parameters to ensure a consistency of approach across Scotland towards the payment of cessation debts.
- Charities to be able to cease future accrual without triggering a cessation debt that is immediately payable in full and continuing to make ongoing payments in respect of accrued liabilities (specific to the charity employers). We believe this can be achieved by the admission agreement between a Scheme Fund and a charity remaining in place, and the recognition in the funding agreement which enables the charity to make deficit contributions to the Scheme fund on a ‘closed on-going’ basis until the last member’s beneficiaries have ceased to receive payments.
These latest recommendations from ICAS form part of a package of recommendations we have addressed to the SPPA to place charities on a more financially sustainable footing. Our recommendations, if implemented, would help protect public services provided by charities through reducing the risk of insolvency for charity employers participating in the Scottish LGPS.