Pensions black hole just gets bigger
Some of the UK’s largest charities are facing a pensions deficit of over £1bn (up from £500m in July 2009)...
...which will hardly reassure donors already suspicious about how much of their cash gets sunk into charity administration rather than delivering end user benefits. Actuarial services company, Alexander Forbes recently confirmed that some have liabilities of more than £100m in their funds.
A recent poll by PricewaterhouseCoopers of 70 CFDG members found that 43 per cent of charities that still have final salary schemes had no plans to close them. Gary Cullen of solicitors Maclay Murray & Spens LLP observes that some third sector organisations pay less well than those in other sectors ‘simply because there tend to be less available funds. So, charities have historically offset lower salaries by offering employees accrual in a final salary pension scheme.’
A number of charities have followed most private sector employees and stopped future final salary accrual. However, Cullen warns ‘they must take great care not to trigger a winding-up of the scheme and, therefore, a very costly section 75 Pensions Act debt.’ He adds: ‘An employer cannot trade while insolvent, so if the pension scheme deficit cannot be contained, the company would have to go into liquidation or administration. The same principles would apply to a charity. Given the volatility of stock markets, it would be very easy for an employer suddenly to find itself trading while insolvent. Those responsible for the running of charities must contain the risk and liability of the pension scheme, perhaps by stopping future accrual or offering incentives for members to transfer into alternative arrangements.’
Two years ago, Caritas reported on how some charities were struggling with the requirements of the Pension Protection Fund levy because of the differences in income sources, capital structures and the credit scoring methods used. The PPF has a separate methodology in place now for the non-commercial sector, and this relies less heavily on trade payment data. It has also just published a consultation policy statement on insolvency risk, stating that Dun and Bradstreet (who measure insolvency probabilities for the 2011/12 period at 31 March 2010) will pick up charity accounts directly from the Charity Commission and advises charities liable for the levy (those operating defined benefit pension schemes) to contact D&B directly with their accounts if there is any doubt about the accounts being available from the Commission.
Author: Clarissa Dann
Clarissa Dann is the Editor of Caritas, Charity Funding Report and Codicil. Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from
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