Charities should be allowed to exit the Local Government Pension Scheme (LGPS) to stop them building up unaffordable debt, according to a new report.

ICAS is calling on the Scottish Government to change the law so charities can exit the LGPS without having to pay an expensive cessation debt.

It argues that being forced to stay in the scheme risks building up pension liabilities that they cannot afford. It also adds that if the last employee in the scheme retires, charities can be faced with an unplanned debt putting it risk of collapse.

‘We believe that urgent action is required to reform LGPS to enable charities to exit the scheme in a controlled and affordable manner,’ said Christine Scott, head of charities and pensions at ICAS.

‘This is not only in the interests of the charities affected and their service users but also the Scheme funds and other employers. It cannot be in the public interest that the vulnerable people these charities serve risk losing access to those services in the event of an insolvency.

‘It makes no sense for charities to keep building up pension liabilities beyond the point they are affordable and the longer the current situation persists the greater the financial impact will be when debts finally crystallise.’

ICAS is also calling for LGPS funds to provide greater flexibility in the payment terms offered when exit debts are triggered, and for cessation debts to be calculated on a more ‘realistic’ basis.