Charities are being urged to act soon to avoid the potential pitfalls of new pensions rules.
New regulations, expected to come into force in 2022, will significantly change how charities and other employers fund their defined benefit pension schemes.The changes could mean that charities have less time to deal with shortfalls in their pension scheme and will have to increase annual contributions.
The Charities Finance Group (CFG) points out that under the new rules, there will be two approaches to funding pensions: the standardised ‘fast track’ approach which could impose tough funding targets, and a more complex ‘bespoke’ approach where DB sponsors will need to spend time and money justifying why they need to be treated differently.
LCP points out that while the rules are still in draft form they are currently built around the circumstances of for-profit employers with little focus given to the issues facing the not-for-profit sector.
The Pensions Regulator (TPR) is expected to issue its second consultation on the new rules later this year, which will provide a final opportunity for charities to give their views and potentially influence the regulation.
A session at CFG’s Annual Conference in October will be dedicated to discussing this issue.
Roberta Fusco, director of policy and communications at CFG says: “We welcomed the opportunity to consult with our charity members and work with the experts at LCP to take a detailed look at the proposed funding code revisions in light of the charity context.
“Whilst welcoming reform, we are keen as ever to ensure that charities can fully meet their obligations to all stakeholders and that the charity context is reflected in any new code. Helpful discussions with TPR have been followed by provision of a detailed paper, addressing issues from a charity angle. We look forward to engaging further as the consultation progresses.”
Ed Symes a partner at consultants LCP, who have been working with the CFG says: “We believe charities will no doubt welcome the principle of the new rules which is to improve the security of members’ benefits. However, it is important to recognise that charities are different to for-profit employers and may need more flexibility when it comes to funding their pension schemes. For example, pushing too hard on contributions could have a negative impact on the security of the scheme if it puts off donors from supporting the charity.
“The current rules have an in-built flexibility which recognises the special situation of not-for-profit employers and it’s vital that this is not lost in the new regime.”
He adds: “We hope TPR’s second consultation will be more charity-aware because of the work that we have done with CFG, but I would encourage charities to respond to the second consultation as it could have a big impact on their finances if they have a defined benefit pension scheme”.