Small charities and staff pension schemes do not seem to go well together. Too often, when combined, they lead to disaster, particularly for the trustees.
A good example of this is Hirwaun YMCA, a small charity which, many years ago, hired two people without realising it was opening itself up to a large future pensions deficit. When the last member of staff left, the charity’s liability crystallised and it was required to pay off its debt immediately.
Hirwaun said it couldn’t afford to pay, and as a result the chair of the trustees has been sued personally for the money.
Hirwaun is by no means the only unincorporated charity to face closure because of a large and unexpected pensions bill for which the trustees are personally liable. And it is not the only charity where the pension plan trustee is considering suing trustees to get its money back.
In a way, the chair of Hirwaun is lucky. He can sell his charity’s building, close the YMCA down, and pay the debts. Others may not have the luxury of valuable fixed assets to help them out.
The problem is potentially widespread. Small charities up and down the land have signed up to unsuitable pension plans which they will find difficult to get out of, and will leave them with enormous bills when the last employee leaves. Incredibly, small charities are still signing up today to highly risky defined benefit pension plans, while at the same time large corporations are desperately shutting theirs down.
Why do trustees get themselves in these situations? Often because they don’t know what they are signing up for. It takes a lot of work and plenty of technical knowledge to find out your potential worst-case pensions liability, and anyone without a background in finance stands little chance.
Volunteers should not have to take on such risks. But they do, often without realising. And there is little by way of a safety net to help them.