Time to reform the employer debt regime
ICAS is calling on the UK Government to reform the employer debt regime under section 75 of the Pensions Act 1995.
Response to the DWP on the employer debt regime
The employer debt regime forces non-associated employers, such as charities, to continue to accrue liabilities they can't afford within multi-employer defined benefit schemes, by not permitting them to exit in a financially sustainable way.
In the ICAS response PDF [128 KB] to a Department of Work and Pensions (DWP) call for evidence, the ICAS Charities Committee and the ICAS Pensions Committee are pressing for urgent change.
ICAS has two overarching concerns about the section 75 cessation debt regime which need to be addressed in the interests of all stakeholders:
- First, ICAS would recommend that the Occupational Pension Schemes (Employer Debt) Regulations 2005 are amended to enable non-associated employers, largely charities, in private sector multi-employer defined benefit schemes to cease future accrual without a cessation debt being triggered.
- Second, ICAS would recommend that pension trustees are given the flexibility to enable employers, who have ceased future accrual, to pay down their debt over a longer-period.
ICAS would also like to see similar reforms being made to the cessation debt regime operated by the Local Government Pension Scheme (LGPS), which in Scotland is a devolved matter. It has been custom and practice for LGPS funds to adopt the employer debt regime of section 75. The implications for community admission bodies, largely charities, are similar to those of non-associated employers in private sector multi-employer schemes.
It is important that the UK Government works across departments to resolve these challenges and engages with the Scottish Government to arrive at a consistent UK-wide approach which addresses the risks faced by the stakeholders of multi-employer defined benefit schemes arising from employers being obliged to accrue pension liabilities they cannot afford to meet.