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Bonfire of the quangos 'domino effect' may result in sector failures

Finance | David Davison | 28 Oct 2010

The haste of the quango cuts has David Davison worried about the impact on organisations big and small as he warns that  pension schemes could provide the final straw to break your organisation's back.

There has already been a great deal of concern raised that the haste with which the government review of quango’s was carried out must mean that all the potential implications will not have been properly considered.

My concern is that this must be the case in relation to the potential impact of pension provision, not only on the quango’s concerned, but on other organisations who may be only tenuously linked by participation in the same pension scheme.
 
There is a great deal more detail on the implications of the proposals and how they might affect third sector employers in my earlier blog and also very helpful information in an article written by leading legal adviser John Hanratty.

The crucial issue for third sector employers is to be aware if any of the threatened quango’s participate in the same pension scheme as they do and if so what proportion of the liabilities of the scheme do they account for. In cases where the liabilities are small in relation to the whole this may result in a minor increase in scheme contributions to fund any shortfall the quango has been unable to meet. However, where the liabilities are material this could in certain circumstances result in an unaffordable increase for other participants resulting in a domino effect of insolvencies amongst the remaining participants.

This could clearly impact on a wide range of organisations, and indeed on the services they provide, none of which would have been envisaged as part of any strategic review. Yet again your pension scheme could well pose a material threat to the future success of your organisation and indeed to its very well-being. Trustees need to carefully consider the implications.

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