Many charities don’t realise how bad their pension problems really are

A few recent stories highlight the impact of the wider pensions crisis on the charity sector.

The combined pensions deficit of the 20 largest charities is around £720m, according to a study by Alexander Forbes.

And
last week, two pensions specialists who advised charities in the
Scottish Voluntary Sector Pensions Scheme – a multi-employer scheme for
small charities – came out and said they believe the scheme presents a danger to many of the charities involved.

A
year ago, an expert predicted to me that at least one major charity
would go under because of its pensions deficit – and it’s certainly
true that there are some out there with major deficits to worry about.

But
in truth, it’s likely to be the smaller organisations, such as those in
the Pensions Trust scheme, that really suffer. They can’t access good
professional advice, they can’t use their reserves to ride out
financial volatility and they haven’t got the in-house expertise to
know if they’ve made the right decisions. Many have signed up for
schemes on the advice of partner or parent organisations that will
prove wholly unsuitable.

The key question is how many other
charities up and down the country are enrolled in local authority and
other multi-employer schemes that are totally unsuitable for them, and
as a result have deep problems that they are totally unaware of.
Probably a lot.

Many of the charities in the Scottish scheme were not aware of the pensions problem they had on their doorstep, according to this blog by David Davison, a pensions consultants who has advised several of them, and this seems to be a common problem.

Many
small charities discover too late – often when merging or shutting down
– that a six or seven-figure debt, larger than their annual income, is
to fall due any moment.

It’s a particularly serious problem for
the trustees of unincorporated charities. They are personally liable
for the debts of their charity.

And, like this trustee, they can find themselves owing an awful lot of cash.