Charity mergers 'undermined by government pension rules'

Government support for charity mergers is being undermined by pensions legislation, according to Navca. It is calling on the Government to revise pension rules that it says make it too expensive for charities to merge.

The 2005 Pensions Act requires any organisation with a multi-employer defined benefit pensions scheme to make a large payment into its pension fund if it transfers its business assets by merging or incorporating, for instance.

The charge is calculated as the amount it would cost for an insurance policy to cover future pensions.

Kevin Curley, chief executive of Navca, said: "Local charities that want to merge could become liable for a debt to the Pensions Trust that is so big the charity would become insolvent.

"We want to see the Government taking steps to ensure this threat to local merger plans is removed."

Anne Blackmore, head of policy at the NCVO, described the problem as a contradiction between government departments.

"The Office of the Third Sector is encouraging charities to consider the benefits of merging for service delivery, but the Department for Work and Pensions has bought in changes to pensions law that are making this difficult," she said.

Ray Jones, head of accountancy policy at the Charity Commission, said that the legislation created a Catch-22 situation. "A small charity may need to restructure, but to do so would trigger a liability that it might not be able to meet," he said.

Jones suggested that the commission would be keen to see sector representation on the Government's Pensions Industry Working Group to help advise on how the 2005 legislation could be improved.

Philip Kirkpatrick, a partner specialising in governance in the charity team at law firm Bates Wells & Braithwaite, said that there was no reason for a charity to pay the full fee when it was merging and employing the same staff.

"I would like to see a change in the legislation," he said. "The Government would rather see charities struggle as opposed to the Pension Protection Fund."

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