Charities – the ticking pension time bomb

Much has been written about the ticking time bomb faced by charities that participate in multi-employer pension schemes. These multi-employer schemes are a minefield for the uninitiated.

If you’re a member of one of these and you:

· Find yourself with no active or eligible members; or,

· Become insolvent; or’,

· Undertake a merger or other restructure

you could find that your Trustees are on the hook for liabilities way in excess of the reserves and funds that you have.

Take the recent example of The Wedgwood Museum that faces having to literally sell off the family silver to pay a pension debt much of which was nothing to do with it. It’s “crime” was to find itself as the “last man standing” when the Wedgwood group of companies got into financial trouble.

Following this high profile case (which you can read more about by clicking here) the Third Sector and pension industry have been lobbying government. Their case was that the legislation that caused this was meant to stop limited companies from walking away from their pension liabilities following a group restructure. It was, therefore, unfair to impose this fully on charities that were not seeking to walk away from their liabilities.

Conservative peer Lord Flight raised the issue in the House of Lords yesterday, calling for the legislation to be amended to avoid museums and charities being forced to sell their assets.

On behalf of the government, Baroness Rawlings said it had reviewed the Wedgwood case carefully and believed that it would be inappropriate not to apply this rule to charities.

So there seems to be no real will to exclude the Third Sector from the unintended consequence of the legislation. This is potentially bad news. With the drive to outsource public sector services to the Third Sector more and more charities are being asked to consider taking on employer membership of multi-employer schemes such as those within the Local Government Pension Scheme.

If you are a Trustee of a charity that is tendering for this type of contract, or if you’re already in one of these scheme, be very very careful. Take professional advice and enter into any agreement with your eyes wide open.

Steve Clark

Steve Clark has provided front line advice to a number of high profile charities on their pension strategy. Currently, 44 Financial Ltd advise a number of not for profit clients on the business risks associated with outsourcing and pension and benefit liabilities. You can email Steve by clicking here.

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