A way out from multi-employer pension schemes

For a small organisation, to have a separate pension scheme has always seemed an uneconomic option given the need for so much expensive advice. Some organisations have got round this by joining multi-employer schemes, prime examples being the various local government pension schemes. These have a multiplicity of employers, including some from outside the public sector. In the past, participation has clearly made sense for any employer taking over a service with employees previously in local government.

There is a catch however. Employers remaining in a multi-employer scheme do not like other employers leaving, as the remaining employers have a residual liability for all the scheme’s pension liabilities including those of the departing employers. To protect themselves they therefore insist that the departing employers secure their pension liabilities left in the scheme by making a massive extra payment based on discounting those liabilities at a very low, risk-free government bond rate.

I recently went to a very useful seminar at Shoosmiths in Birmingham on the Social Housing Pension Scheme, the multi-employer defined benefit scheme used by most housing associations and run by the Pensions Trust. Like all defined benefit schemes, this is proving costly and some housing associations are looking at capping their costs by switching to a defined contribution scheme, also run by the Pensions Trust. Apparently some way has been found whereby those housing associations that do so can leave their existing pension liabilities in the defined benefit scheme without having to make a massive extra payment.

Has anyone heard of this with any other multi-employer pension schemes? Is it being considered for the local government pension scheme?

All thoughts welcome to davidr@orchardgrowth.com .

David Rimington