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Charities, pension schemes and the judgement of Solomon 1

Governance | David Davison | 11 Mar 2010

I read with some dismay the story of the 72-year-old  charity volunteer facing ruin as a result of being pursued for nearly £20,000 by the trustee of the pension scheme he was associated with as chairman of a branch of the charity.

Now I’m not privy to all the details of this case but I’ve been commenting on the risks charity trustees face from their pension scheme, particularly where the charity is unincorporated, for some considerable time.

Where an unincorporated charitable organisation is unable to meet its pension liabilities it is possible that the individual trustees of the charity could be pursued personally for any shortfall. Now clearly this just seems totally unreasonable and no-one ever volunteered to carry out charitable work on the basis that their home could be at risk.

However scheme trustees are often placed in a very difficult position in ‘multi-employer’ schemes, where numerous organisations participate in a single scheme. Many such arrangements are on a 'last man standing' basis which means that if the trustees do not pursue the debt in a particular case, then that debt would fall to be met by the other unconnected participating employers, saddling them with liabilities in respect of another party’s employees. This hardly seems equitable either.

A further issue which I’ve raised in previous blogs is that the organisation cannot just solve this issue by incorporating as there is a significant risk that this could trigger exactly the pension deficit the organisation was trying to avoid.

From the article it would appear that the Hirwaun branch has an asset in the form of the YMCA clubhouse. Selling or mortgaging the property to fund pension liabilities is clearly unpalatable, but we should not lose sight of the fact that this action is required to ensure that Hirwaun employees receive the pensions that their employer promised them.

It is clear that the circumstances affecting Hirwaun are not unique and charitable bodies which operate final salary pension schemes will face increasingly difficult resource decisions around meeting their pension promises to staff and funding their charitable activities. Many trustees have some understanding of the risks they face individually however clearly many well-intentioned trustee volunteers do not and high-profile cases such as this serve to highlight the issues faced and to encourage them to take, whatever steps are necessary to deal with them.

So whilst pursuing a septuagenarian is clearly not the best solution in this, or any other, case, trustees and charities need the wisdom of Solomon to arrive at a solution that is equitable to all parties. As someone once noted, the key to wisdom is knowing all the right questions.

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