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Disability Rights UK takes action to resolve historic pension deficit

On November 11th the Company Voluntary Arrangement was approved, by a meeting of our members and a creditors’ meeting. The CVA is now in place and Disability Rights UK no longer has a  pension deficit.

Background

This action will mean our work for a society where all disabled people can participate equally as full citizens is able to continue effectively. Pensioners and staff will be protected.

The pension scheme has been closed to new members for over 10 years. It is a defined benefits pension scheme, which guarantees inflation-protected pensions based on final salary. This scheme, as with many organisations, faced a large deficit. We made regular repayments to the Pension Trustees to clear the deficit. Due to changes in gilt markets and low interest rates, in just 3 years from 2010 the size of the deficit had risen more than 5-fold (from £600,000 to over £3 million) with consequent and matching increases in deficit reduction payments.

Chair Phil Friend said: ‘Given this financial position of DRUK, the Board decided to apply for a Company Voluntary Agreement (CVA), which commenced a Pension Protection Fund (PPF) assessment period, ahead of the scheme transferring to the PPF (subject to eligibility) in return for mitigation payments from DRUK. This has now been approved.  This enables Disability Rights UK to settle our pension deficit and devote our energies to campaigning for disabled people’s rights. Doing nothing was not an option and was likely to lead to a formal liquidation process and a closure of the charity unless the pension deficit was addressed. Our Board unanimously believes this is the right way forward’.

This action has been approved by members’ and creditors’ meetings.  The granting of a CVA has no effect on staff, operating creditors, grant providers and project funders. The work of Disability Rights will continue as planned.

Unfortunately, despite strenuous efforts to agree an affordable repayment plan – including detailed scrutiny of all the actuarial assumptions underlying the valuation – as a small charity we could not fund repayments on this size of deficit. We therefore took legal advice and followed Charity Commission guidance.

Since the CVA is approved, Disability Rights UK will continue with its operation. The pensioners will receive pension compensation from the PPF albeit with some restrictions (for instance, 90% pension for people not yet of pensionable age). This reduction is very regrettable, but Disability Rights UK simply had no way of repaying the deficit such that their full pensions could be safeguarded.

With the exception of the pension deficit, DR UK’s business model is entirely viable. In our first 2 years of full operation we have broken even after paying significant sums in pension repayments plus costs. In our third year, we are ahead of budget after the first quarter. Our unrestricted income is rising. The organisation is sustainable.

Further information

Question: What is a CVA?

Answer: A CVA is an option when a company – or in this case charity – faces financial difficulties (in our case only because of the pension deficit). The organisation comes to an arrangement with its creditors about the basis on which it will repay its debts. A CVA can allow the organisation to continue when it is otherwise viable, although without an agreement it would face ‘insolvency’, and the CVA will facilitate the commencement of a Pension Protection Fund (PPF) assessment period prior to the scheme being transferred to the PPF (subject to eligibility), thus allowing the charity to continue without the liability. For the PPF to agree this they must be better off than if we simply went into liquidation (if we went into liquidation they would assume responsibility for the pension fund). The PPF have indicated that they are prepared to do this in principle.

The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation and the employer therefore faces potential insolvency.