On the go: Charities participating in multi-employer defined benefit schemes will have to disclose their individual liabilities, which could lead to these organisations opting to leave and setting up their own final salary plan, an expert warned.
According to guidance published by the charity regulators behind the statement of recommended practice, institutions that participate in multi-employer final salary schemes will have to move to full DB accounting starting January 2020 if the pension fund actuaries are able to identify their individual liabilities.
Until now, charities in multi-employer schemes only had to recognise the present value of their deficit contributions in their balance sheet as a pension liability, explained Alistair Russell-Smith, head of corporate DB at Hymans Robertson.
The change in regulation has brought charities to parity with any other employer that has a DB scheme, he noted.
He said: “For some of these multi-employer schemes, the deficit contributions are driven by the technical provisions funding basis, which means that this move could result in a higher deficit on the balance sheet for those charities.”
However, this change could remove a barrier for charities considering exiting their multi-employer scheme.
Mr Russell-Smith said: “If a charity is concerned about issues such as a lack of control in those multi-employer schemes and the 'last-man-standing' risk, and now that there is accounting parity, it could decide to transfer their assets and liabilities out of the multi-employer scheme into their own scheme to get more control, which will not have any detrimental accounting impact for them.”
In December, it was revealed that housing association Metropolitan Thames Valley left the Social Housing Pension Scheme, with goal of removing the last-man-standing risk – where the housing association was potentially responsible for pension obligations of other employers.
