Demise of People Can over pensions liabilities leads to fears of domino effect among charities
Hundreds of homeless people with mental illness, addiction and debt problems are being left to cope without vital support services after a leading charity was forced into insolvency by its pensions liabilities.
The winding up of People Can, which provided homelessness support services on behalf of several English local authorities, has shocked the voluntary sector. Pensions experts say its demise could trigger a domino effect, potentially driving hundreds of other charities providing public services into liquidation.
Experts said charities at high risk of going bust included those dependent on public funding, or which have inherited expensive pensions liabilities after taking over the running of public sector services, including social care, leisure centre facilities, housing and academy schools.
They say the pensions crisis will undermine the government’s attempts to outsource a bigger share of the public services provider market to smaller voluntary sector groups, leading to fears that only national charities, large housing associations and private companies will be able to run outsourced services in future.
People Can employed almost 300 people and ran a range of services, including homeless hostels, housing support, domestic abuse projects, work with ex-offenders and schemes to help teenagers stay out of gangs.
It held 40 contracts with local authorities in England when it was controversially forced into administration in late November. Most councils rapidly put in place replacement services, but it has now emerged that 10 contracts, supporting 452 profoundly vulnerable people in Somerset, Bristol and Liverpool, were not renewed.
Maff Potts, the former chief executive of People Can, said he had been shocked by councils who refused to restart support on the grounds that it would “save money”, even though they had originally contracted for the service until at least the end of the financial year.
An anonymised list seen by the Guardian of 71 People Can clients left without a service in Bristol includes people with severe mental illness, including some at risk of suicide or self harm, those with a learning disability, debt problems and anorexia and victims of rape and abuse.
In Liverpool, a list of 28 high-risk clients served by the charity includes individuals with a range of serious problems including personality disorders and convictions for wounding, assault, firearm use, domestic violence and child sex offences.
In Somerset, 296 mentally ill people received “floating support” designed to help them keep their housing tenancies and prevent them falling into debt or destitution. According to People Can, the council said it would not find a new provider but instead would send clients a letter “with a number to call if they needed support”.
Potts said: “These councils will not notice when our clients drift on to the street and into A&E or into police cells as their lives unravel without support. Some will die – they are already listed as being at risk of suicide; some will be hospitalised, some will commit crimes and some will revert to drugs and alcohol.”
Elaine Hodgson, 58, a mental health service user who was a volunteer with People Can in Taunton, Somerset, called the charity’s collapse “devastating”. She said: “I know there are financial problems [for the council] but I do not think people realise how this affects us. We were just dumped. I cannot believe people have been so cruel.”
A spokesman for Liverpool city council said former People Can clients were receiving support from Merseyside probation trust and the local NHS mental health trust. It was “confident of managing the winding up of People Can services whilst ensuring no service user is left vulnerable”.
Somerset county council said it had identified “appropriate providers” who were able to offer support: “Everyone who had been getting support from People Can was written to with information on how to get alternative support and we believe this has worked well.”
David Davison, director of pension actuaries Spence and Partners, said People Can was “the tip of the iceberg”: “There are a huge number of ‘zombie charities’ who are just struggling along with just about enough money to pay the pension contributions but any increase, as is likely over the next couple of years, will drive them under.”
Davison said the government needed to change the regulations to protect financially viable charities in so-called multi-employer schemes – of which People Can was a part – from being crushed by pensions liabilities.
He estimated that as many as 6,000 charities, ranging in size from small, million-pound turnover organisations to big household names, were in multi-employer schemes. “It is not unreasonable to assume that 500-1,000 of these would be at risk if there are significant rises in pension contributions.”
He added: “Most charities run on very tight margins and do not make much of a net financial surplus. If they have an increase in pension contributions, they have to make savings elsewhere. To find, say, £150,000 savings at short notice in these organisations is going to be pretty difficult.”
Caron Bradshaw, chief executive of Charity Finance Group, which represents charity finance directors, said: “We’ve heard of some pretty worrying stories, particularly from charities at the smaller end of the scale. Because of their liabilities, many are unable to merge or restructure and are losing out on public sector and grant funding at a time when finances are already tight.”
Potts said his charity was stable financially and winning new contracts. But after a write-down in the value of its assets, it found itself with a £17m pension liability. It presented a solution to the Pensions Trust, which operated its pension scheme, that it said would have allowed it to meet its obligations while continuing as a going concern, but this was rejected, pushing it into administration.
Stephen Nichols, chief executive of the Pensions Trust, said the rescue proposal was flawed. The trust considered People Can to be unviable, and he said it had a duty to protect the interests of its other members. “We are not making a judgment on the work People Can did. We are just complying with the regulations. We just look at the numbers.”
A spokesman for the government’s Office for Civil Society acknowledged that it was a “financially challenging time” for charities, but it was helping them on a range of issues, including access to different forms of capital such as the Big Society Capital investment fund.
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