Finance experts have warned on the growing issue of charity pension liabilities, as Navca and Community Matters abandon their merger plans due to fears over rising pension debts.
The Department for Work and Pensions (DWP) told civilsociety.co.uk this morning that it will respond to the charity sector’s concerns, after CFG and other umbrella groups wrote to the DWP, warning on the "devastating" effects of pensions liabilities.
Yesterday afternoon, Navca and Community Matters announced they had dropped their plans to merge this Spring because of fears around their pension debts.
Both charities are members of the Pension Trust’s Growth Plan, which consists of four multi-employer pension schemes. But had the merger gone ahead, one or other of the charities would have been forced to leave the scheme, which would have left them with large pension debts.
According to Community Matters’ accounts for 2011/12 up to 31 March 2012 its pension deficit if it were to withdraw from the scheme would have been £328,005, while it had net assets of £342,368.
Navca’s pension debt on withdrawal was estimated at £82,801 on 30 September 2011, while the charity reported net assets of £1.3m in its accounts for 2011/12.
David Davison, a partner at pension specialists Spence & Partners, told civilsociety.co.uk that the pension debt figures for both charities have probably gone up since their accounts.
Commenting on their decision to abandon the merger, Davison said: “I am not surprised - this is happening regularly. I am meeting Cabinet Office and DWP next week to try and look at it again. It is causing a lot of issues for organisations which won’t be able to merge.”
New legislation could negate pension debts
Both charities accounts’ suggest they were in the Pension Trust’s Growth Plan 3, a scheme in which charities could face significant liabilities after the DWP ruled that schemes like it would be regarded as defined benefit schemes, not “money purchase” schemes, potentially increasing an employer’s exposure to any debt on withdrawal.
But Davison advised that this could now change: “The government is considering not implementing legislation which would change Growth Plan 3. If this does happen the pension debt in this scheme would go back to zero.”
Davison also added that it was strange that Navca and Community Matters had not considered new legislation which allows a new organisation to assume responsibility for another organisation’s liability without triggering any debt, during a merger.
The charity sector has been lobbying government on the issue of charity pension debts, sending a letter to the DWP on the issue just last week. The DWP told civilsociety.co.uk it would be responding to the concerns from NCVO, Navca and CFG.
Commenting on Navca and Community Matter’s failed merger plans, Jane Tully, head of policy and public affairs at CFG, said: “That these exciting merger talks have collapsed simply due to the pension liabilities is deeply disappointing and indicative of the seriousness of the problems we’ve been flagging up with government. At a time when finances are already squeezed, charities are exploring merger and restructure options more than ever before – but unfortunately we’ve heard of many other cases where pensions have halted a merger negotiations, and we expect to hear more.
The reality is that that for many charities with multi-employer defined benefit schemes of the sort that have come into play here, the long term outlook is grim. This situation is completely untenable and reviewing the cessation regulations and wider affordability are a must of the health of our sector.”
