Blogs

Pensions and charities are stuck between an ostrich and an elephant

Finance | David Davison | 2 Aug 2010

David Davison says charities are still sticking their heads in the sand about future pension provision, despite the increase in comment on the issue.

Vibeka Mair's article "How will charities defend pension shortfalls to supporters?" raises some really significant issues for charities and their historic and future pension provision. The issue of pension deficits for charities is huge and yet from my experience it continues to fall somewhere between the ostrich with its head in the sand and the elephant in the room despite the growing tide of comment on the issues.

Pension deficits for most charities are now more transparent with disclosure in accounts under FRS17 although even this disguises the true extent of the problem. The FRS17 disclosures will display deficits a fraction of the position should organisations seek to try to exit – frequently these can be 3 to 4 times the size!!

Some organisations however do not disclose the position as there is an exemption under FRS17 which allows participants in ‘multi-employer schemes’, such as local government schemes and those run by the Pension Trust to disclose purely based upon their contributions, which for many disguises the extent of the problem.

Local government schemes have now set up very efficient processes to produce FRS17 for participants quickly and cost effectively and most auditors are now encouraging their clients to disclose which is providing for more transparency. Whether these calculations provide an accurate assessment for many organisations is open to question and I have commented on that previously: “Is your FRS17 deficit too high?”,  and indeed on the whole question of pension liabilities for charities.  However, at least disclosure highlights the issue and encourages some action even if there is some debate about the numbers.

The position is more difficult for participants in schemes such as those run by the Pensions Trust, as they seem unable to provide accurate disclosures which means participants are left in the dark about the seriousness of the problem. Many of those in the SVSPS Scheme only realised its significance when the scheme was forced to close at the end of March this year.

This is undoubtedly going to create issues for charities as those donating and funders look more closely at the organisations financial position, and either decide not to donate or to restrict the use of the funds they do donate both of which will cause issues, especially when added to the other financial constraints organisations will face given the current economic background.

This is not a new problem as the Charity Finance Directors Group highlighted it as far back as 2004. It is also the biggest single issue many charities will face and it can’t be ignored. We all know which part of an ostriches anatomy is exposed when it sticks its head in the sand.

Tweet

Who's Who: David Davison