Out-Law / Your Daily Need-To-Know

LGPS: structural problems highlighted by charity closure

Out-Law News | 29 Mar 2019 | 9:09 am | 1 min. read

A UK charity's decision to close in light of a "substantial pension deficit" should prompt other employers that participate in the local government pension scheme (LGPS) to plan ahead to manage likely increases in their liabilities, a public sector pensions expert has said.

Nick Stones of Pinsent Masons, the law firm behind Out-Law.com, was commenting after the Rural Development Council (RDC) in Northern Ireland announced that it will close at the end of March 2019 due to its pension deficit.

The RDC is a registered charity, having previously been a government body. Despite severing its ties to the government, the RDC has remained part of the LGPS in Northern Ireland, which is administered by NILGOSC (Northern Ireland Local Government Officers' Superannuation Committee).

Chair of the RDC, Tony McCusker, said, "A series of unfortunate circumstances including a substantial pension deficit, a continued annual hike in pension costs, the inflexibility of the NILGOSC pension scheme regulations and a lack of political stability have all played a part in the closure."

"We have witnessed a number of charities closing over recent years with increasing pension costs often the main contributor. For us it is extremely frustrating and disappointing that our local government pension scheme is not doing more to protect Northern Ireland charities in the way that other government schemes are across the UK. Government seriously needs to find better solutions, other than insolvency, for organisations to exit the scheme, which are more beneficial to members and to the Fund in the long term," he said.

Stones said the RDC's case "highlights a structural problem in respect of legacy employers within the local government pension scheme". The problem is not confined to Northern Ireland, he said. 

"Whilst this relates to a charity it could equally apply to a myriad of small employers who for whatever reason find themselves within the LGPS facing mounting liabilities and increased employer contributions," Stones said.

"The central problem is the inability to take control unilaterally - leaving does not necessarily cap the liability and in any event the legislation does not give the scheme a huge amount of flexibility as to how it can treat the employer’s liability over time. However, there are steps smaller employers within LGPS can take to mitigate their position and to try to deal with the liabilities in stages. It is important to understand your options, plan to manage the risks and implement that mitigation strategy over time," he said.