Charity Pension Scheme Exit: Cutting Section 75 Debt and Reducing Risk

Background

In 2024 – 2025, we supported a charity in exiting a multi-employer DB scheme, eliminating a major financial risk. A drop in Section 75 debt made the exit affordable and with our guidance, the charity acted decisively, freeing itself to focus fully on its charitable objectives.

Problem

The charity was a participating employer in a closed multi-employer defined benefit (DB) scheme, where employers remained liable for funding deficits and orphan liabilities arising from other employers’ exits or insolvencies. Despite having a strong balance sheet, the charity was exposed to significant ‘last man standing’ risk due to the weaker financial positions of other employers in the scheme. In 2020, the Section 75 exit debt was around £1.2 million, making an exit financially unviable at the time.

Action

By 2024, rising interest rates had significantly reduced the scheme’s liabilities and in turn, the charity’s exit debt to £0.4 million. Recognising the opportunity, the charity (supported by our strategic advice) made the decision in late 2024 to pursue an exit. We provided end-to-end support through the process, including monitoring market conditions and leveraging regulatory flexibility that allows retrospective exit notices; that allows retrospective exits within 3 months of giving notice

Collaboration

Working closely with the charity’s finance and governance teams, we advised on optimal timing and execution strategy. Through our guidance, the charity gave its formal notice to exit in January 2025, backdated within the allowed window to lock in favourable conditions and minimise the Section 75 debt.

Solution

The charity successfully exited the DB scheme for a final Section 75 debt of £0.3 million, a cost-effective result that eliminated a major long-term risk. The client is now free to focus fully on its charitable mission, with its financial exposure significantly reduced and its governance strengthened.

Key Milestones