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Charities: growth or sustainability - why it matters for their pensions

As the House of Lords conducts the second reading of the Pension’s Bill today, there are many valuable points being made by industry and stakeholder representatives.

Post bySarah Woodfield

These include the ‘unrivalled opportunity’ to create single-tier state pensions; more changes to auto-enrolment legislation; further discussion on pensions charges and a look at adapting legislation concerning fund transition to take into account the current transient workforce. (Our own recent and upcoming work on some of these issues is covered in our latest blogs on auto-enrolment and our consultation response to pension’s charges)

However, while these high-level debates rage around us, CFG are concerned about a niche point that involves recognising the distinctiveness of the charity business model - a common oversight in policy making as proposals are often developed with the corporate and public sectors in mind.

Our concern relates to a new objective that is being added to the Pension Regulators current suite of goals. The new objective aims:

- to minimise any adverse impact on the sustainable growth of the employer
In essence, it seeks to protect the long term affordability of deficit recovery plans; a serious concern for all employers, charities notwithstanding. We welcome this recognition by Government of the pressures that pension deficits can place on employers, as we argued in our response to Pensions and Growth consultation earlier in the year.

But we have a minor issue with the final choice of words - on first reading, its sounds very good indeed. It even has one of the sectors favourite words in there – ‘sustainable’. But read a little closer and you’ll stumble upon a word that slips off the tongue of sector leaders less readily – ‘growth’. Although growth is (some might say the sole) the objective of commercial enterprise, governments and development bodies, it is not so common for charities which seldom prioritise ‘growth’ in their operating models. At least not growth in the financial terms as we understand is intended by this objective.

For many of the pressing social needs that charities deal with, improving society and helping those in need – basically delivering the mission - is at the heart of their business model. Growth therefore is not necessarily the focus, since the accomplishment of charitable goal implies the charities winding down at some stage (for most in the very distant future). Growth of a charity can only be considered in the context of the lifetime of the public benefit which they serve. Some trusts and grants even have it written into their charitable objectives to wind down and spend out within a specific time period. Idealistic perhaps, but, regardless, fundamentally different from the growth we expect from commercial enterprises.

Instead, sustainability rings core to the charitable mission - a sustainable lifeline of charitable funds to enable charities to deliver their aims, so long as there is need to be met. What’s all the fuss about if the word sustainable is in there anyway? Well, CFG’s experience has often been that policy is made with the corporate and public sectors in mind, and ends up unsuited to the structure and funding model of charities. This causes complications at implementation stage, resulting in headaches for lawyers, charities and government alike.

An excessively legalistic approach means that charities may lose out once as the Regulator and lawyers get around to interpreting the objective. A minor addition to the face of the Bill, or clarification at this parliamentary stage on the interpretation of ‘growth’, will provide greater clarity for the Regulator and reassurance for charities: less costly and timely headaches all round.

So we are arguing for a minor change so that the new objective reads as follows: - To minimise any adverse impact on the sustainability of the employer, OR on its sustainable growth. In the absence of making this change, we would seek assurance in parliament that the term ‘sustainable growth’ will be interpreted in a broad enough way to account for the unique goals of charities and not-for-profits. To see our briefing in full, please view our Pension's page.

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