Whilst the decision to close the Scottish Voluntary Services Pension Scheme (SVSPS) to all future benefit accrual from 2010 is just symptomatic of the wider economic and longevity issues closing numerous other final salary pension arrangements I certainly don’t view the decision totally negatively.
Having advised a number of clients who participate in this scheme, and indeed many in other schemes of a similar type, one thing is patently clear, namely that most of these small organisations shouldn’t have been allowed within 100 miles of a final salary pension scheme!!
Small charities and not-for-profit organisations generally do not have the access to flexible resource nor the critical mass to be able to ride out the volatility inherent in the provision of this type of pension scheme. They also generally don’t have the time or skilled staff to devote to managing these arrangements. Up until the closure announcement many of the organisations participating were blissfully unaware of the potentially catastrophic pension liabilities that they face. Only now are many having to deal with the consequences of decisions taken many years ago.
The Pensions Trust has at least recognised the issues faced and sought to address them proactively by drawing a welcome line under the scheme, but a number of questions are raised by the events. Why were so many small charities encouraged to participate in a pension scheme of this type? In doing so why were they not given very clear guidance about the potential risks that their organisation was exposed to as a result? Had they been, would so many have blindly participated?
Unfortunately this scheme is only the tip of the proverbial iceberg. A huge number of similarly sized, all equally ill-equipped to deal with final salary liabilities, participate in local government schemes, other schemes run by the Pensions Trust and other multi-employer arrangements. All are undoubtedly going to be faced with similar issues. To their credit some local authorities are beginning to recognise the issues, but this could be much too late for many of the participants, who are now faced with Hobson’s choice – continually rising contributions or an unaffordable exit.
Organisations involved in these schemes need to have a clear understanding of the liabilities they face and what the implications are for their organisation and begin to plan for the future. This could well be the most significant financial issue that many charities face as it could dwarf any reserves built up as well as having a potentially negative impact on charitable funding. For those coming out of the SVSPS be very cautious about any recommendation to continue with the provision of final salary benefits as this is not a problem that’s going to get any better by further participation.
I was going to call this article “it seemed like a good idea at the time” and come up with a list of fairly obvious examples such as Gordon being prime minister, those purple velvet loon pants I wore to a school disco in 1979 and just about any recent film starring Adam Sandler. But when I thought about it I couldn’t see how it had ever looked like a good idea.
See Article on Social Housing Pension Scheme.