Caron Bradshaw: Charity pension bail-outs are rarely about mismanagement

The recent case of Age UK Norfolk showed that the intricacies and potential risks of public service delivery are not always obvious to the casual observer, writes our columnist

Caron Bradshaw
Caron Bradshaw

Recently I was interviewed by BBC Look East about a payment that Norfolk County Council had made into the pension scheme of Age UK Norfolk. The details were sketchy, so both my opinions and those of the other contributor (someone from the TaxPayers' Alliance) included a heavy dose of educated guesswork.

The TaxPayers' Alliance damned the use of public money to "bail out a charity who couldn't manage its financial affairs". This is probably a good yardstick for the public's understanding of the pension problems that charities face and its view of the relationships between the sector and local government.

Councils used to run public services. Now they mostly pay others to run them - often using the same front-line staff. The provider, irrespective of sector, will be liable for the normal costs of employment, including pensions - a point sometimes lost on the public. Although it's not uncommon for councils to retain some historic liabilities, the more savvy ones offload such liabilities and risks, leaving the contractor holding the proverbial baby when services cease to be financially viable and funding stops. These contracts can be very complex and can often generate highly charged and largely uninformed debate.

In this case, the council was trying to decommission an under-used and financially unviable respite centre run by Age UK Norfolk, which appeared to agree this was necessary, even though it could result in insolvency. The charity - like many across the country - faced a pension deficit, in this case of £1.2m. Its plight was reviewed; the council took the view that losing the charity's wider services, or having to recommission them after loss of the charity, would not be in the best interests, financially or otherwise, of the people of Norfolk. So it paid £700,000 into the charity's pension fund, with the view that such a payment would maintain the viability of a valued partner and still save the council £300,000 a year. This decision was taken in private because of contractual sensitivities.

Financial mismanagement by a charity? A secret backhander to bail out a favoured organisation? Or the natural consequences of a difficult economic climate, fall-out from years of unsustainable pension policies and the requirements of Tupe law?

My co-contributor had a point about the apparent lack of transparency, which has been addressed since by the publication of the minutes. When decisions are taken behind closed doors, one plus one can quickly equal four.

Relationships between councils and the providers of services are increasingly complex. In addition, the pensions maze is hard to navigate; CFG has done a lot of work in this area, which has made me well aware of the issues the sector is facing. You won't be surprised, then, that I took a different view of the situation. What if the charity had employees, inherited along with pension debts, who transferred under Tupe from the service provided previously by the council? What if the council faced a large contribution to the local government pension scheme for staff it used to employ, should the charity fail?

Pension legacy debts are usually a result not of mismanagement but of UK pension policy and employment law. When services are contracted out, the council isn't always off the hook - not because the partner is a charity, but because the contract determines liability and risk. But these elements are not obvious to the casual observer - hence why, sadly, headlines continue, such as "Council bails out mismanaged charity".

Caron Bradshaw is chief executive of the Charity Finance Group

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