Pension compensation changes could cost sector millions, Helen Forrest of the NAPF warns

The Pension Protection Fund has launched a consultation on proposals, including the creation of a specific risk scorecard for not-for-profit organisations

Helen Forrest
Helen Forrest

The not-for-profit sector could end up paying millions of pounds in increased levies to the Pension Protection Fund, the National Association of Pension Funds has warned.

The PPF, which compensates pension savers if their employers go into insolvency, launched a consultation in May on the introduction of a new insolvency risk model for determining levy payments, developed by Experian.

This includes the creation of a specific risk scorecard for not-for-profit organisations, which would be applied to determine each individual organisation's level.

In its response, the NAPF says it supports the creation of the scorecard, but has concerns.

The NAPF response says: "We remain concerned that the focus on financial data under the new model means that not-for-profits stand to lose out under the new framework." There is a lack of centrally provided financial data on the sector, according to the association.

The NAPF says that the new framework will bring about an increase, which could run to millions of pounds, in the levy paid by the not-for-profit sector as a whole – although many organisations will experience a decrease.

Helen Forrest, the policy lead for defined-benefit pensions at the NAPF, said: "The move to a new PPF-specific model of insolvency risk is not without challenges and, overall, the not-for-profit sector looks set to be one of the losers in terms of increased levy payments. One of the reasons for this is the focus on financial data.

"The creation of a scorecard specifically for not-for-profit schemes presents a good opportunity for these schemes to ensure their levy accurately reflects their financial risk; the NAPF urges not-for-profit schemes to work with the PPF and Experian to improve the relevance, availability and quality of financial data about their sponsor organisations."

Before the consultation was launched, the charity pensions consultancy Pitmans Trustees Ltd said it was vital that the financial peculiarities of the not-for-profit sector were recognised by the new scorecard.

Melanie Cusack, head of the charity unit at PTL, said: "PPF scorecards focus on financial fundamentals such as scale of operations, profitability, gearing, liquidity and cash flow – all of which can be reflected quite differently in the not-for-profit sector. It is therefore vital that the separate scorecards go far enough to be truly not-for-profit-specific."

In its response to the PPF consultation, the Charity Finance Group said that the reasoning behind creating the new scorecard "makes sense in part", and that "a number of non-financial drivers ultimately play a large role in determining charities’ insolvency rates".

Last week, Caron Bradshaw, chief executive of the CFG, said that pensions were the "elephant in the room" and possibly the biggest issue facing charities.

The PPF consultation closes on 23 July.

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