More charities will be "driven to the brink" by an escalating pensions crisis in the sector unless the government introduces more flexibility, the chief executive of the local infrastructure body Navca said yesterday.
Joe Irvin told the Charity Finance Group Northern Conference that a planned merger between his own organisation and Community Matters, an umbrella body for community associations, had been scuppered by pension liabilities, and that other charities would face similar problems unless change was introduced.
He said that more flexibility was needed from the pensions regulator, the Pensions Protection Fund, and trustees of pension funds.
He said the chancellor was currently looking at changes to guidance for the pensions regulator, which would mean it had to take account of the viability of the sponsoring organisation, as well as protect the members, but it was not clear if that would protect not-for-profit organisations.
"Unless there are changes, more charity mergers will be thwarted," he said. "More charities will be driven to the brink. Mergers will be difficult, but for many charities, survival will be difficult too."
Irvin said that his merger had been stopped despite a high level of awareness about pensions at the start of the process.
Both Navca and Community Matters were members of the Growth Plan, which consists of four multi-employer pension schemes operated by the Pensions Trust, and had combined deficits of more than £400,000 on withdrawal, according to their 2011/12 accounts.
"We looked at pensions when we first started," Irvin said. "It was one of the first discussions we had.
"But as our negotiations went on, the situation drifted and became worse and worse. There were changes in the law, and there was a degree of uncertainty about what was happening – although we knew it was getting worse. The combined situation was unquantifiable."
Pensions deficits in multi-employer schemes are much larger if a charity withdraws from the scheme than they are for current members. And a charity that withdraws must usually pay the whole deficit at once.
If substantial changes occur to the structure of an organisation, such as a merger, this is often being treated by pension schemes as a withdrawal. This situation is known as "crystallising" the debt.
Irvin said that Navca and Community Matters had been confident that they would not crystallise their debt by merging, but they could not be certain that future events would not cause problems.
"We were never able to establish how bad it might get," he said. "Being a charity in a Pensions Trust scheme is like being a saver in Cyprus. You don’t know when you might get an extra surcharge put on you."
Irvin said that the wider sector faced major problems. "The top 50 charities are facing a combined pensions deficit of £4.7bn on a withdrawal basis," he said. "That’s huge.
"But it’s not just the big charities. Many small charities find themselves in multi-employer defined benefit schemes that are in difficulty, and they are being surcharged for it."
He said many charities had also joined local authority pension schemes when they had taken on staff under a contract, and found later that they were carrying historical liabilities built up by the local authority.