Martin Gill: Charities face rough ride on pensions

Published on Saturday 4 February 2012 00:00

PUBLIC sector pension provision has attracted considerable debate over the last few months, yet many may not realise that a similar situation exists in the charity and not-for-profit sector.

The issue of funding final salary schemes and transferring new employees to defined contribution schemes is just as important for charities as for the private and public sector.

The problem is that when the last member of a final salary scheme retires the liability is crystallised, which means that the total financial demand must be met within a very short time frame.

Greater lifespans and reduced incomes mean that many Scottish charities are facing enormous financial pressures as liabilities increase at the same time that contributions are either static or declining.

Next week I am chairing a seminar for the Scottish Charities Finance Directors Group to discuss the issue of pensions and the forthcoming implementation of auto enrolment for the sector.

New auto-enrolment regulations mean employees will be automatically enrolled into their employer’s qualifying pension scheme and this scheme will be rolled out over the next few years depending on the size of the organisation.

For many charities, already facing problems funding their existing pension liabilities, this will be a further challenge. The problem is how to ensure that a charity is meeting its existing obligations whilst also establishing appropriate provision for new employees.

Many charities have an under-funded final salary scheme which, due to reduced revenues, falling employee numbers and longer lifespans is causing an enormous financial burden.

The new auto-enrolment scheme means the pension issue is bringing to the fore funding issues more rapidly than many organisations had anticipated.

Ultimately new defined contribution pension schemes will be self-financing and will not produce the soaring liabilities for employers which final salary schemes did in the past. However, in the meantime, Scotland’s charities face a financial balancing act as difficult as that facing their public and private sector counterparts.

• Martin Gill is the charities partner with accountants PKF

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