Finance: Safety levy 'could be a disaster'

Corporate insolvencies, such as the recent failure of crisp-maker Golden Wonder, could prove disastrous for charities that are included in the new safety net levy for members of final-salary pension schemes that have gone bust, according to the Charity Finance Directors' Group and the Charities Consortium.

A joint working group on the issue has written to the board of the Pension Protection Fund, which will administer the new levy, asking it to reconsider its decision to treat charities in exactly the same way as other employers.

The group is worried about plans to permit levy rates to be increased by up to 25 per cent a year.

"Charities are recognised as being low risk and, in the great scheme of things, don't contribute much to the overall exposure faced by the PPF," said Ian Theodoreson, director of corporate resources at Barnardo's.

"But failures in the corporate sector, outside our doing, could have a disastrous effect on charities, which cannot readily absorb above-inflation increases, and certainly not of the magnitude proposed."

Charities emerge as low-risk in the PPF's plans, which were out for consultation until Monday. Employers are divided into 100 bands according to the risks they represent and the size of their pension deficits.

The assessment, by credit risk agency Dunn & Bradstreet, says most charities are included in bands 98, 99 and 100, meaning they pose the least risk of going bust and leaving pension scheme members stranded.

But Theodoreson wants charities designated as a separate group to shield them from future rises in the levy. "The fear is that it was always going to be set at a low level," he said. "But with the provision to allow for 25 per cent year-on-year increases, it could soon become a punitive regime."

However, a spokesman for the Pension Protection Fund said it was unlikely to change its original proposals unless it could be persuaded there were serious problems.

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