Charity Finance Group demand government action to prevent charity pension timebomb
30th April 2012
Charity Finance Group is calling on the government to hold a full and open consultation on multi-employer pension schemes for charities. In a paper published today, CFG estimate that up to 5,000 small to medium sized charity and community organisations who are part of these schemes across the UK are financially damaged by the restrictive rules that apply.
Multi-employer pension schemes, originally designed to bring benefits from collectively owning the pension liability, and which can work effectively for businesses, are not suited to unconnected organisations such as charities; a point recently acknowledged by the government. Having entered these schemes in good faith, charities are now finding themselves trapped, unable to afford to stay or leave. Looking to the future, the liabilities these charities face are growing rapidly, with no realistic exit routes and for many, insolvency will be the only option.
Caron Bradshaw, CEO of CFG said: “We are gravely concerned about this – the situation is utterly devastating for many of the charities stuck in these schemes. Moreover, because of their liabilities they are unable to merge or restructure and are losing out on public sector and grant funding. And worryingly, vital resources - both financial and time - that should be directed towards delivering key services, are having to be redirected to address these liabilities.
We recognize that this is an extremely difficult area for the government, and the importance of ensuring that members benefits are protected, but standing still is just not an option. We believe that collective engagement is the only way to find solutions that work for everyone and give charities a level playing field.”
David Davison, Director at Spence and Partners and author of the paper for CFG said “I’ve unfortunately witnessed first-hand just how significant, and potentially damaging, defined benefit pensions are for charities. The legislative environment which organisations face is completely unsuitable and in need of review. It is simply not in anyone’s interests, neither members, employers, schemes or the tax payer, for these charities to continue to build liabilities which they cannot afford. CFG is right to raise the profile of this issue, encourage debate and to actively pursue change.”
The paper comes just days after the Cabinet Office and DWP launched a ‘Red Tape Challenge’ on pensions. This initiative seeks information on overcomplicated regulations which strangle organisations and contribute to poor outcomes for members and will explore whether they can be reformed or abolished. CFG will be raising the impact of the regulations relating to multi-employer pension schemes in response to the challenge.
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Notes to Editors:
1. CFG is the charity that champions best practice in finance management in the voluntary sector. Our training and development programmes enable finance managers to give the essential leadership on finance strategy and management that their charities need. With more than 1,700 members, managing over £19bn, we are uniquely placed to challenge regulation which threatens the effective use of charity funds. For more information, please see www.cfg.org.uk
2. David Davison is Director at Spence and Partners Ltd. www.spenceandpartners.co.uk.
3. The government recently acknowledged the predicament unconnected charities in multi-employer schemes face in its response to the DWP Consultation on the Employer Debt Regulations published in December 2012.
“Employers in charitable and voluntary sectors:….The government recognises that some non-associated employers can face problems with an employer debt.....Where an employment-cessation event occurred to such an employer the only options were to pay the debt..... As many of these employers could not pay an employer debt, they had to continue to participate in the scheme in order to avoid one triggering.”
4. CFG raised this issue with pensions minister Steve Webb MP in February 2012. A copy of the letter can be found here.
5. A copy of the paper can be downloaded from CFG’s website.
6. The Government’s Red Tape Challenge on pensions runs from 19th April until 10th May. People who deal with pensions processes day-to-day are being urged to tell the Department for Work and Pensions specifically which regulations they think are too burdensome. www.redtapechallenge.cabinetoffice.gov.uk.
7. For more information, contact Jane Tully, Head of Policy and Public Affairs, firstname.lastname@example.org or on 020 7250 8400.