Pension levy threat to charities

Smaller charities could suffer under a new pensions levy that will double the combined amount that UK organisations must pay to secure their final-salary pension schemes.

The Pension Protection Fund announced in December that the levy estimate for 2007/08 has been set at £675m to help make up for last year's collection shortfall and to reduce the fund's deficit. The levy was expected to raise £575m in 2006, but the actual amount raised was nearer £320m.

Charles Nall, corporate services director at the Children's Society, said: "For many of the big charities, which have very good credit ratings and have made satisfactory progress on their pension deficits, this levy will not be a significant amount.

"The difficulty will be for smaller charities that don't have the credit rating and have been unable to afford their pension deficits."

Ian Theodoreson, UK director of corporate resources at Barnardo's UK and former chair of the Charity Finance Directors' Group working group on the pensions levy, warned that charities with poor credit records, as calculated by credit raters Dun and Bradstreet, were likely to be the worst hit.

He said: "The Pension Protection Fund consultation document indicates that, in raising additional sums, the fund will skew the burden to those organisations that present the greatest risk. We can all anticipate an increase, but those organisations that have lower failure score ratings will pay proportionately more of the increase than those with the highest."

Ernese Skinner, policy and campaigns officer at the CFDG, said that an increased levy was a "shocking" demonstration that independent experts' views were more credible than those of the Government.

But Pat Wynne, director of pensions advisory firm Entegria, said he believed that charities should consider whether to continue offering final-salary pension schemes.

Wynne said: "Within the charities sector, you have got to be very careful that you are not seen to be using donated money to fund staff pensions rather than furthering the cause of the organisation.

"That may mean the end of final-salary schemes for charities. They might be better moving to career-average schemes."

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