Pensions considerations for Students’ Unions
While SUs have a variety of more pressing matters to consider, pensions are often the largest liability a SU carries.
Why should SUs care about pensions?
Pensions are not typically at the top of many Students’ Unions (SUs) agendas; we understand there are a variety of pressing issues SUs have to deal with and, like many other employers, pensions naturally take a backseat.
However, pensions often represent one of the largest liabilities on an SU’s balance sheet and managing these liabilities is a key responsibility for SU Trustees.
In this article, we consider some of the main pensions issues SUs face including:
· Managing Students’ Union Superannuation Scheme (SUSS) liabilities
· Managing liabilities of other defined benefit pension schemes the SU participates in
What are defined benefit schemes?
Most employers are familiar with the requirement to auto-enrol certain employees into a suitable pension scheme. However, SUs often have additional pension obligations due to the unique way in which they are structured, including participation in defined benefit (DB) schemes.
A common example of a DB scheme is the SUSS. Additionally, it is not unknown for SUs to employ members of the relevant university’s DB Scheme and, occasionally, public sector schemes (like the Local Government Pension Scheme).
DB schemes are typically more generous than DC schemes as they provide the employee a guaranteed level of income in retirement, with employers often having to fund former employees’ benefits long after they leave or retire. DB schemes are also more highly regulated under both legislation and by the Pensions Regulator (TPR).
SUs are not exempt from pensions legislation governing DB schemes by virtue of their not-for-profit status (or otherwise), and must comply with these provisions in addition to their obligations under the Charities Act 2006, the Companies Act 2006, and the Education Act 1994. The main time compliance becomes an issue for SUs is on incorporation. As discussed below, pensions legislation can lead to significant liabilities being inadvertently triggered on incorporation.
Pensions issues on incorporation for SUs
Many SUs choose to incorporate as a separate legal entity, because it offers more protection from personal liability for trustees, as well as simplifying administration. To see an outline of the potential benefits for SUs of incorporating, please read our article here.
The key pensions issue for SUs on incorporation is inadvertently triggering a significant debt under pensions legislation. A debt is usually triggered by the transfer of assets and staff to the newly incorporated entity (although it can also arise in other cases too). This issue is relevant for any SU who participates in the SUSS, or any other DB scheme, such as a university’s own scheme.
Managing SUSS liabilities on incorporation
There are legal tools built into the legislation to help employers (like SUs) avoid triggering a debt in these circumstances. Every year the Trustee of the SUSS uses an ‘easement’ in pensions legislation, so that SUs have a window within which to incorporate, without triggering a statutory debt (this year’s period ran from 5 July to 1 October 2021).
Certain statutory requirements must be met in order for the easement to apply and care must be taken to ensure each requirement is met in order to avoid a debt being triggered accidentally.
We have recently assisted a number of SUs through the incorporation process, as well as helping with wider issues like considering other stakeholders (e.g. universities) and advising on the correct execution of documents.
We recommend SUs seek legal advice at an early stage of the incorporation planning process, ideally the year before the proposed incorporation. In addition to providing legal advice, we can also support SUs in managing the pensions and other aspects of incorporation too. Please contact our SU team here if your SU is thinking of incorporating.
Other DB schemes
In addition to SUSS, SUs may participate in current or legacy DB schemes run by their university (a “University Scheme”). If so, the same issue of triggering a debt is also likely to be relevant in respect of that other scheme too. Ensuring that a debt is not triggered will require engagement with the Trustees of the University Scheme and will require a separate process to be followed. In short, it is essential for the SU to seek further legal advice where the SU participates in a University Scheme and intends to incorporate.
If the SU participates in a public sector pension scheme such as the local government pension scheme (“LGPS”), similar issues can arise to those of other DB Schemes. The SU should seek specialist public sector pensions advice (which we can provide) if it suspects its staff has these benefits and it is incorporating.
General statutory pensions issues
SUs will typically be one of several employers in a DB scheme. SUs will therefore typically take the lead from the main (‘principal’) employer in the DB scheme (e.g. the university or, as in SUSS, the NUS). However, this does not absolve SUs from responsibilities (e.g. to pay contributions to a scheme within statutory timescales). TPR can issue fines in many circumstances, so if you have any issues or queries regarding your SU’s participation in a DB (or DC) pension scheme, please get in touch.
All SUs should be aware of their obligation to automatically-enrol (and periodically re-enrol) eligible workers into a suitable pension scheme. Legislation on automatic enrolment (“AE”) came into effect in 2012 and has applied to all employers since 2017.
AE compliance for SUs can be complicated by the temporary/causal nature of some workers they employ. AE legislation has a broad definition of “workers” and case law since AE was introduced has
potentially affected this definition too. If the SU is in any doubt about whether AE applies to a particular individual, we can provide advice and support to ensure the SU has complied with its AE obligations.
Additionally, SUs must also notify TPR on enrolment and re-enrolment of staff or face escalating penalties. Not all employers get this right and it can be helpful to obtain legal advice on how to address any TPR reporting concerns the SU may have.
Hopefully your SU is aware of the issues highlighted in this article. However, if you have any queries about the points above, or more general legal questions, please get in touch using the details below.