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Pensions risk for charities highlighted to ministers

Tuesday, March 12, 2013

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Growing pension liabilities are creating a time bomb within the charity sector that could explode at any moment, say charity membership organisations. 

The Charity Finance Group (CFG), National Council for Voluntary Organisations (NCVO) and National Association for Voluntary and Community Action (NAVCA), have "grave concerns" about escalating pension liabilities, and have submitted a joint response to the government consultation on Pensions and Growth.

They have highlighted how a combination of an inflexible regulatory environment, growing contribution levels and – critically for many – unsuitable multi-employer defined benefit schemes are creating a stranglehold on many organisations.

In a letter to Steve Webb MP, minister for pensions, the three membership bodies wrote: "Charities in these [multi-employer defined benefit] schemes are caught in a double bind: stay in the scheme and face rising contributions and increasing 'orphan' debt, or leave and 'crystallize' enormous buy-out debts."

They have called upon the government to:

1. Review the legislation for charities in multi-employer pension schemes to permit them to cease accruing benefits without automatically triggering a cessation liability

2. Explore options for a support fund to allow charities to borrow money to pay off their pension deficits and then pay the borrowed money back over an agreed period of time

3. Create greater flexibility around the PPF, so that pension funds can operate in a more flexible way that is more responsive to employer's financial situations

Jane Tully, head of policy at CFG, said that while the words 'cataclysmic' and 'time bomb' can often be over-used, in this case they are not.

"Not only are these pension liabilities putting the financial sustainability of an organisation at risk but they can be a massive barrier to mergers and restructures," she said. "There is a very good chance that some smaller and medium-sized organisations will go to the wall as a result and as charities fail there is a good chance there will be a domino effect on others in the same pension schemes."

First published 12.03.2013

editorial@caritasdata.co.uk