Breadcrumbs

Many charities can't meet 'growing pension liability', Amnesty finance chief warns

By David Ainsworth, Third Sector Online, 25 June 2013

Steve Webb

Steve Webb

Letter to pensions minister Steve Webb, pictured, asks for changes and says many smaller charities do not have the reserves to meet possible liabilities in Growth Plan scheme

Many charities do not have the resources to meet the "growing potential liability" accruing in a specialist sector pension scheme, Amnesty International UK has told the government.

A letter sent yesterday by Iain McSeveny, head of finance at AIUK, to Steve Webb, the pensions minister, says that rising costs are a problem for many of the 1,700 charities in the Growth Plan, a series of schemes run by specialist charity pensions provider the Pensions Trust.

The deficit in the Growth Plan rose by 20 per cent in a year, according to a letter sent recently by the trust to members. It is 74 per cent funded on a buy-out basis.

Growth Plan 1 and Growth Plan 2, both of which are closed to new entrants, are defined-benefit schemes, where the employer guarantees the final level of pension the employee will receive. Both have accrued substantial deficits.

Growth Plan 3 was originally classified as a defined-contribution scheme, where the employer makes a payment on behalf of the employee but does not guarantee their final benefit. However, changes in the law have reclassified it as a defined-benefit scheme.

In his letter, McSeveny says these changes should not lead to members of Growth Plan 3 becoming liable for large debts in Growth Plans 1 and 2.

"In substance, the deficits in the Growth Plan have arisen in series 1 and 2, but the provisions in the Pensions Act 2011 will result in Growth Plan 3 being reclassified as a defined-benefit scheme and, subject to awaited regulations, make Growth Plan 3 members jointly and severally liable for all liabilities in series 1 and 2," McSeveny says in his letter.

He says the changes to the growth plan are "analogous to my adjoining neighbours breaking down the party walls on either side of our humble abode and then declaring that we are now jointly liable for both of their outstanding mortgages".

The letter says that the liability is "of great concern" for his own organisation, but that others are in a worse position.

"I have been able to speak to a number of smaller charities who are in a similar position but where the potential impact is even more serious; many either do not have sufficient reserves, or unrestricted reserves, to meet this significant and unexpected cost," he says. "I would be grateful if you would be willing to consider removing the threat to series 3 members to historic liabilities through clarifications in the awaited regulations pertaining to the Pensions Act 2011.

"I appreciate this is a difficult situation, but there is clearly no reasoned or equitable basis for making series 3 members jointly and severally liable for large historic liabilities from the series 1 and series 2 schemes."

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