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

The Institute of Chartered Accountants of Scotland (ICAS) called on the Scottish Government to change the law so charities can exit the LGPS without having to pay an expensive cessation debt.

It argued that being forced to stay in the scheme risked charities building up pension liabilities that they cannot afford.

ICAS added that if the last employee in the scheme retires charities can be faced with an unplanned debt, putting them at risk of collapse.

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

‘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 also called 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.