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Catch-2014

Catch-2014

Mark Lindsay

As we approach 6 April 2014, there are a number of not-for-profit (and possibly many other) organisations who will look on its arrival with a sense of dread.

That date is the date on which the new definition of ‘money purchase benefits’ is due to come into effect. This change will impact on many pension schemes, turning what were previously money purchase benefits into non-money purchase benefits, and all that goes along with that. There are transitional and consequential provisions that are supposed to dull the impact of the new definition, which come into effect at the same time.

Once you break down the detail of the new legislation, you are left with a number of anomalous situations.  For example, there will be a number of organisations who took an active decision to provide the members of new pension schemes with pure money purchase benefits, and despite having played by the rules now find themselves facing ongoing contribution obligations and potentially an exit debt in a defined benefit environment.

Many of these organisations participate in industry-wide pension schemes where their options for finding a solution to this dilemma are limited. The industry-wide schemes themselves offer, in some cases, a partial solution but seldom (if ever) a full solution, particularly in relation to deferred members.

These organisations will therefore (barring a last minute change to the transitional provisions or an amendment to their scheme rules to allow for transfers without consent) be left with a large, unforeseen liability with no way of effectively eradicating it.  They will be left in the unenviable position of being subject to a large cessation debt should their last active member leave pensionable service.

The impact of this legislation is, in our view, unjustified. To force not-for-profit organisations to fund liabilities and/or pay debts, that relate to completely unconnected and unassociated organisations, with money that has been collected to fulfil their own trust purposes seems perverse.  The DWP needs to think again and address what many see as the unforeseen consequences of the legislation.

Mark Lindsay
Director

LChalmers