Charity puts centre up for sale to cover LGPS costs

Earlier this year, volunteering charity Community Service Volunteers was able to make a £2.9m deficit contribution to the London Borough of Islington Pension Fund following the sale of property assets.

You’ll often find charity finances to have balance sheets that are rich in assets but tight in cashflow. Using assets to meet cash needs is quite common

Patrick Bloomfield, Hymans Robertson

MSS was due to consider closure of the Stuart Resource Centre by 2017 following a fall in fundraising income, but a £223,000 sum owed to the North East Scotland Pension Fund led the charity to announce the sale sooner than expected.

Its 2014 report and accounts said the payment related to “the buyout payment for an historic defined benefit scheme”.

In a statement released by the charity, Morna Simpkins, MS Society Scotland director, said: “The MS Society and the Aberdeen Branch are committed to ensuring that services for people with MS in Grampian are not lost. It is due to this commitment that the committee, after consultation with its members, have decided to sell the Stuart Resource Centre.”

Charity members of the NESPF paid final contributions into the scheme in 2012.

Patrick Bloomfield, partner at consultancy Hymans Robertson, said: “You’ll often find charity finances to have balance sheets that are rich in assets but tight in cash flow. Using assets to meet cash needs is quite common.”

Many corporate schemes make asset-backed contributions in which company assets are transferred to the ownership of the pension scheme, increasing the funding level of the scheme in line with the value of the assets.

But Bloomfield said that as neither charities or pension schemes pay tax, asset-backed contributions do not have the same appeal for charities as for corporates. “You can achieve the same thing with less expensive [methods],” he said.

Pay to play

There are between 2,000 and 3,000 charities within the LGPS. Anjelica Finnegan, senior policy and public affairs officer at Charity Finance Group, which champions best practice in charities’ financial management, said increasing deficits can make continued participation “unsustainable”.

“Under the LGPS, liabilities for existing members transfers to the most recent employer,” she said.

“Charities that have taken on a local government contract can be expected to take on 100 per cent of assets and liabilities for any employees that they take on as part of that contract.”

Finnegan said this in effect outsources the risk for past deficits to the charity, making local government contracts punitive.

She added: “Liabilities for LGPS should be segmented so that employers are only liable for debt linked to the service period of the employee at their organisation and continues salary link on past-service liabilities. This would bring the LGPS in line with other multi-employer schemes.”

Finnegan cited consultancy PwC’s ‘Deficit management in the LGPS’ report, released in July this year, which stated it can be in the interests of a fund to permit the exit of an employer on weaker terms.

The report said: “Consider the scenario of a small charity that is financially weak and can offer no security. If it were allowed to continue to accrue benefits in the fund, the fund’s risk will continue to increase over time.

“However a managed exit of the employer would stop liabilities growing further, and might be justified even if this meant entering into a relatively long recovery plan with a weak employer and little or no security.”