Recognising the difficult issues posed by pensions for many charities the National Association Of Pension Funds is holding a free seminar for charities in London on Thursday 6th February 2014. The event has gathered a series of specialist speakers with expertise on pensions and the charity sector to provide attendees with in depth knowledge on the issues faced and the potential options available.
The event is designed to be highly interactive with participants being given the opportunity to ask questions and feedback views to regulators, representative bodies and specialist advisers. This is undoubtedly an event not to be missed.
More information on the event is available here: NAPF Charities Forum
The problems 3rd Sector employers are facing with their defined benefit pension schemes it would seem are at last getting the attention they deserve and momentum for change is building.
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Pension liabilities have been cited as one of the main barriers to pursuing a merger, and it is understandable given the complexities of the legislation, HR issues and potential threat of triggering a significant financial burden.
It is no wonder then that the last two years has seen few mergers completed and a significant number being abandoned before conclusion.
Mergers are inevitable in the current market environment as a way of improving competitiveness, scale and efficiencies, but to navigate the pension minefield professional advice sought at an early stage of the negotiations is vital.
This advice would allow a full investigation of the implications of any change to ensure short term objectives are not being met at the expense of the long term security of the organisation.
Read the full article by David Davison at Civil Society.
The recent announcement about the improved funding position of the Social Housing Pension Scheme (SHPS), while good news on the face of it does warrant some further investigation and should encourage some questions to be asked by participants.
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The Charity Finance Directors Group (CFDG) have announced plans to research the true scale of the charity sector’s final salary pension problem.
David Davison for Civil Society, explains why the focus should not be on the size of the number, but on how to address the issues, engage all stakeholders and formulate a ‘blueprint for change’.
I noticed the positive announcement this morning that Signature and Care Support is to merge with Choice Support to create more jobs.
This is clearly good news but from a pensions perspective the change does highlight a major issue for any bodies changing status (e.g. incorporating or merging) where they participate in multi-employer pension schemes such a those run by local government, the Pensions Trust or similar. Such a change in status can trigger the unwelcome pension consequence of terminating the participation of one (or both) bodies in the scheme with the requirement to pay a very significant debt contribution to the scheme. The level of debt can be many times the size of that disclosed in the organisations accounts and can frequently impact on the organisations future success. It could also be levied even where there is no change to the numbers of staff continuing to participate in any scheme post the change.
This is an area where great care is required and early engagement with the pension scheme is essential as problems can frequently be overcome but only if arrangements are made in advance of any change. I’m not suggesting that this is the case here as I’m unaware of the pension background but it is a general note of warning to be prepared where any change in corporate status is contemplated.
Our regular blog author and industry commentator David Davison has now won a place as a fully commissioned blogger for Civil Society website. With extensive experience of pension and finance issue affecting the charitable and not-for-profit sector David will impart his wisdom (and hopefully some wit) on the subjects of governance and finance.
David explains “Clearly I’m delighted to have been selected by Civil Society to provide topical comment of their site. The Civil Society site brings together wide ranging issues that affect the charitable sector and I hope to provide some valuable insight, informative content and encourage debate on subjects I think the sector should be talking about.”
Read the blog that secured David’s success – “Between a rock and a very hard place – the looming pension crisis”, and keep an eye out for his further instalments.
David Davison is a director of Spence & Partners Actuaries and specialises in providing pensions advice to charities and not-for-profit organisations, especially those who run their own final salary schemes or who participate in the LGPS and multi-employer schemes.
In July 2009 the Pension Trust made the announcement that the Scottish Voluntary Sector Pension Scheme (SVSPS) would close to all future accruals from the end of March 2010. This caused great consternation among the membership and most have been grappling with the difficult issues associated ever since. Read more »
Interesting article on FT.com re the difficulties being experienced by the Church of England in relation to funding its final salary pension liabilities.
It’s not surprising that a body such as the Church of England appears to place greater store in faith than in reason. What is surprising is that it appears to be placing its faith in equities and Mammon, the false god of riches and avarice.
Actuaries will tell you that equities provide a poor match for pension scheme liabilities and we have blogged previously on the risks for both employers and trustees on relying too heavily on equities to save the day. Clearly they can have a part to play, but for the trustees of the Church of England Scheme, unless they are satisfied that the Church will be around at all times to underwrite the Scheme (okay, so it has been around since the time of Henry VIII which suggests a greater longevity than the average employer) this is a relatively high risk strategy.
According to Professional Pensions the Church of England does also appear to be taking some steps to try and address the liability side of the equation, and isn’t relying on blind faith alone. It is proposing to:
- Contract the Clergy Scheme into the state second pension
- Reduce the full pension from the Clergy pension scheme from two-thirds of National Minimum Stipend (NMS) to half of NMS for future service;
- Limit the annual increase in the pensionable stipend to price inflation (RPI);
- Chang the pension age for future service from 65 to 68; and
- Move, again for future service, the accrual period for full pension from 40 to 43 years.
Whilst moving things in the right direction evidence from the private sector suggests that such limited reforms rarely deliver the desired results and more fundamental change is required to address the risks posed to any employer by a final salary pension scheme.
Employers need to understand that they can be proactive in managing their schemes’ liabilities and they have a range of options available to them in dealing with their final salary schemes – which means they don’t have to rely on divine intervention.
The Pensions Trust has at last drawn a line under the Scottish Voluntary Services Pension Scheme with plans to close it to all future benefit accrual from April 2010. The knock-on effect of this decision is to highlight how wholly unsuitable it was for the many small charities and not-for-profit organisations who were encouraged to take part.
It also leaves many questions unanswered. Why was there such enthusiastic encouragement to participate in a pension scheme of this type? Why were these small organisations not given very clear guidance about the potential risks that they were exposed to as a result? Had they been, would so many have blindly taken part?
And the biggest question remains: what is going to happen to other similar schemes with participants all equally ill-equipped to deal with final salary liabilities?
David Davison is a Director at Spence & Partners, independent actuaries and consultants in Scotland and Northern Ireland.