Sector seeks pensions protection

Finance | Ian Allsop | 1 Oct 2005

A sector working party consisting of directors of finance, CFDG, the Charities Consortium and special advisers, has come together to review the potentially serious impact of the pension protection fund levy upon charities. The fund has been established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover it.

Under the proposals, from 6 April 2006 weaker defined benefit pension funds, based on a Dunn and Bradstreet credit rating, will pay a far higher levy than stronger schemes. Charities fear the proposals could be discriminatory because they do not have big reserves and so will be perceived a high credit risk. For example Barnardo's believes it could find itself facing an annual levy of more than £4.5 million. Its latest accounts show that its final salary scheme has a £68 million deficit on a £275 million fund.

Many big charities still offer final salary pensions, which they argue that they must to compete with local authorities for staff. However, despite enormous deficits estimated at £30 billion, local authorities will not be required to pay anything towards the safety net.

Les Jones of the working party said it would be meeting with the PPF board, the Charity Commission and relevant politicians. "We feel the PPF poses a challenge for charities with direct benefit pension schemes, and could impact on the services they provide but we are doing everything it can to minimise the impact."

Directory: Charity Commission | Charity Finance Directors' Group (CFDG)

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