Our regular pension blogger David Davison investigates whether the collapse of Refugee and Migrant Justice has infected any charity 'multi-employer' pension schemes.
It’s always disappointing to witness the failure of a charitable organisation providing support services to vulnerable individuals in our society. However, when I saw the report in Civil Society about the insolvency of Refugee and Migrant Justice, I couldn’t help rushing to have a look at their accounts to see how far the pain might spread.
My concern was that many of these organisations participate in either local government or other ‘multi-employer’ pension schemes, which would mean that if an organisation became insolvent leaving a pension scheme deficit it would be passed on to all those organisations who remain in the scheme.
I’ve written about these ‘last man standing arrangements’ before as they pose a significant risk to charities. They could mean that organisations could be paying £1 or more for staff of other failed organisations for every £10 they’re paying for their own staff, with the situation likely to deteriorate over the next few years as further organisations cease to be able to meet their obligations.
In this case however some charities ‘dodged a bullet’ as Refugee and Migrant Justice belonged to the Pension Trusts Growth Plan 3. Now this is an interesting scheme.
I normally work on the theory that if it looks like a duck, quacks like a duck and floats like a duck then it’s probably a duck, but not in this case – more like a turkey.
The Growth Plan 3 looks like a conventional trust-based defined contribution scheme where members' benefits are ultimately based on the contributions paid, the investment return and the ultimate rate of conversion of the accrued fund in to pension.
However the fact that the scheme has an underlying investment guarantee means it is in fact classified as a defined benefit scheme with a potential risk of deficit and PPF costs.
The good news is that there is currently no liability although that cannot be guaranteed to continue.
The lesson here is to check the pension benefits your organisation is providing very carefully to make sure the scheme you’re running is exactly as you expect and does not expose your organisation to material financial and HR risks.
