Multi employer debt: what you need to know

Transcription

1 Multi employer debt: what you need to know Ruth Bamforth Andrew Waring Richard Soldan Gordons Merchant Navy Officers Pension Fund Lane Clark & Peacock

2 Multi employer schemes: employer debt Ruth Bamforth Gordons LLP

3 How multi employer schemes work Charities and multi employer schemes Types of multi employer scheme: Scheme for associated employers Scheme for non associated employers: Employer liabilities segregated Employer liabilities non segregated

4 Employer debt: the law Regime very complicated repeatedly changed Applies to DB schemes where: Employment cessation event occurs Scheme winds up Debt calculated on buy out basis very expensive Various ways to deal with debt

5 Employment cessation event Open scheme: Employer stops having active members At least one other employer still has active members Period of grace (up to 36 months) expired Closed scheme: Employer notice to trustees

6 Calculation of debt Employer s share of deficit calculated on buy out basis Includes proportion of orphan liabilities Orphan liabilities issue for charities in non associated schemes

7 Dealing with the debt Pay debt in full OR Use one of legislative easements BUT Easements not designed for charities

8 Contact Ruth Bamforth Barrister, Pensions Gordons LLP Tel: E mail: [email protected]

9 Multi employer schemes: S75 Andrew Waring Chief Executive MNOPF

10 The Merchant Navy Officers Pension Fund Industry wide defined benefit scheme, founded in 1937 Sponsored by 350 non associated companies Last man standing Assets around 3.8 billion 50,000+ members 1996 closed to new entrants 1000 active members 91 Employers of active members

11 MNOPF 2012 deficit compared to S75 Company 2012 Deficit S75 est. A B C D E 12,684 65,172 29, ,228 37, ,353 1,368, ,619 2,902, ,791

12 S75 debt calculation basis Buy out debt, gilts basis No allowance for future deficit contributions Orphan liability Ongoing liability basis c. 27% S75 basis c. 62% Legislation unfair in multi employer scheme Cross subsidy between employers

13 MNOPF Employers At risk of S75 91 PEs currently employing active members 57 PEs (92 active members) with 1, 2 or 3 active members with total S75 debts of over 280m 11 PEs active members reach age 61 by end Jan 2017, with S75 debts totalling 41m

14 S75 tools available Member staying on beyond age 61 Re open the New Section to DB accrual Open the New Section to DC accrual Period of grace Withdrawal arrangement Flexible or scheme apportionment

15 Defined Contribution rationale

16 This presentation is prepared for the NAPF Charities Forum on 6 February 2014, and others should not rely on it or take action based on it without seeking independent advice. The written comments included in this presentation should be considered in conjunction with supporting oral comments and background provided by MNOPF Trustees Limited prior to any actions or decisions being taken. This presentation should not be disclosed to any third party other than with our specific permission. Unless otherwise specifically agreed in writing we assume no responsibility, duty of care or liability to any third party who may gain access to a copy of this document. MNOPF Trustees Limited.

17 Multi employer schemes: risks and options Richard Soldan Lane Clark & Peacock LLP

18 Multi employer schemes the risks to employers Typical defined benefit risks Financial conditions Investment returns Life expectancies Legislative change Affect deficits and employer contributions Affect employer debts

19 Multi employer schemes the risks to employers Risks specific to multi employer schemes Inadvertently trigger employer debt Cross subsidies Lack of control Lack of flexibility Accounting impact FRS102 Last man standing risk A failed employer s commitments fall on remaining employers

20 Last man standing risk Webb pledges multi employer DB reform as charities hit by triple whammy Professional Pensions, May 2013 Future orphan liabilities Other employers Pension Protection Fund The Government? Elsewhere?

21 What are your options? For dealing with your employer debt Avoid triggering employer debt Reduce build up of debt Exit and pay debt Reduce and monitor debt Transfer to another scheme

22 What are your options? If aim is to avoid triggering an employer debt Retain active members Maintain a number of members Monitor regularly Use period of grace Restructuring easements Amalgamations and incorporations All employers cease accrual at the same time Other risks remain; deficits could improve or worsen

23 What are your options? To reduce overall risks and reduce build up of debt 1. Move to reduced (cheaper less risky) defined benefit structure for future if available 2. Cease accrual of future defined benefits without unintentional debt

24 Taking control Exit and pay debt Significant sum No further legal obligations Reduce and monitor debt Transfer to another scheme Options to reduce potential debt Decision makers informed Monitor until time is right Reduced up front payment No cross subsidies No last man standing risk

25 Monitoring employer debts Day to day projections using technology Decide to pay at a certain level

26 Case study dealing efficiently with employer debts Situation Multi employer scheme employers Many cessation events Seeking efficient approach for dealing with employer debts Solution Developed calculation routine Used by pensions team Flexible apportionment arrangements Outcome Employers can settle liabilities Standardised legal agreements No actuarial certification Automated daily calculations for all employers

27 So in summary Employer debt legislation incredibly complex Particularly for multi employer schemes Understand the risks Investigate FRS102 impact There are options! To reduce risk or increase control Technology can help

28 NAPF Charities Forum 2014