Finance: Pension levy 'could threaten the sector's basic service delivery'

Essential services delivered by charities will be lost if plans for a pension levy to be imposed on the sector are not changed, ministers have been warned.

The Charity Finance Directors' Group and the Charities Consortium say the Pension Protection Fund Board's proposed levy, designed to provide a safety net for members of final-salary schemes that have gone bust, unfairly penalises the charity sector for corporate failures.

A working group set up by CFDG and the consortium has responded to the board's proposals, calling for fairer rules for charities.

The group has conducted its own research among the largest charities that run defined-benefit schemes for their employees, and has concluded that the levy will inevitably mean the closure of vital services.

"Although the pension protection fund is a worthy aim, its potential costs are of concern to charities," said Charles Nall, corporate services director at the Children's Society. "There is scope within the proposals to treat particular organisations in a way that reflects their needs and characteristics. We are in constructive dialogue with the board, and we hope they will devise specific proposals for charities that meet our circumstances."

The working group says the pensions protection fund is being set up in response to failures by commercial companies to meet their pension obligations.

But although many corporations have defaulted over their pension funds in the past 15 years, there have been no instances of significant charities becoming insolvent, it claims.

The board has proposed a levy based on employers' credit ratings. But charities do not have credit ratings because they do not raise money from the capital markets. As a result, special rules will have to be developed for the not-for-profit sector.

Shirley Scott, chief executive of the Charity Finance Directors' Group, said: "Those charities with their own occupational pension schemes have already had to address the impact of the bear market.

"We hope that we will be able to support the development of suitable regulation and that ministers will take up our proposals and offer to help develop them."

In August, members of the working party met credit-rating agency Standard & Poor's to explore the idea of developing charity-specific credit-rating criteria.

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