Charities sitting on £600m pension deficit

In September 2009 ‘Third Sector’ reported that the UK’s top 20 charities could be sitting on pension deficits totalling in excess of £600m.

This estimate was based on the past accounts of the top fundraising charities who predicted a shortfall in their pension funds. According to the pension’s actuary Alexander Forbes, this equated to an increase in deficit of over £100m for those top 20 charities.

At the end of 2009, Ian Chivers, Finance Director of the charity NSPCC, reported that his charity had been looking at a pension deficit of about £50m. This has resulted in the charity closing its pension scheme to future accruals, which means employees with a defined pension scheme will not see their contributions increase. Their final return from the pension fund will depend on the financial performance of the fund.

With news last month that the Barking & Dagenham federation member of the national charity, Age Concern was put into administration due to a very substantial pension deficit liability, what is in store for the charity sector?

Brian Devlin, Chairman of the Board of Trustees of Age Concern, Barking & Dagenham (“ACBD”) comments:

“It saddens me to see what is happening across the country to the charitable sector. Never before during my time in this industry have charities been treated so badly. With Local Authorities having to manage their own poorly performing pension funds coupled with funding cuts from central Government, putting pressure on charities is now being seen as a real soft option.”

Brian explains:

“In order to manage reducing annual budgets, some Local Authorities across the UK have been electing to transfer staff to the private sector and charitable organisations (such as Age Concern Barking & Dagenham) under TUPE - Transfer of Undertakings (Protection of Employment) Regulations 1981. When funding cuts from the Local Authority to the charity are then implemented, it is the charity that has to take the decision to reduce its own staffing levels in the form of redundancy, a decision no employer likes to make. This situation is further exacerbated by the poorly performing pension funds of the charity that have been hit by the continuing global financial crisis. Age Concern Barking and Dagenham has seen its Local Authority funding cut from £1.8m to £800k in two years, which in turn has resulted in a shrinking pension fund. This is a situation that is common across the UK and one that is sadly not going to get any better. This is the primary reason why Age Concern Barking & Dagenham was put into administration.”

Finbarr O’Connell, joint administrator of ACBD, comments:

"It was the size of ACBD’s pension deficit which ultimately meant that it had to file for administration. Pension deficits are a big issue in UK plc as a whole and the charity sector, unfortunately, has not escaped this problem. As restructuring advisers, the key thing is for us to be consulted as early as possible in order that we can work with the trustees to try and preserve as much of the remaining charitable services as possible. Brian Devlin at ACBD and his specialist charity legal advisers at Farrer & Co got us involved to provide restructuring advice just as soon as the seriousness of the solvency issue was identified.

At ACBD, we are working with other charities in order to try and transfer as much of its remaining charitable activity to a safe haven as we can. We will be feeding back our experiences and the lessons learned from the case of ACBD to other trustee groups and to Government in order that some good will come out of the problems that have beset ACBD.”

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