Average pension deficit of large charities worth 24% of unrestricted income

Coin into piggy bank pension scheme savings
2 May, 2019


The largest charities in England and Wales have an average pension deficit worth 24% of their annual net unrestricted income, according to a new report by Hymans Robertson.

The consultancy firm analysed the annual reports and financial statements of 40 large charities from England and Wales, including Arts Council England, Age UK, Barnardo’s, The Royal National Lifeboat Association (RNLI) and the University of South Wales.

Each charity had defined benefit (DB) pension scheme liabilities; a DB pension gives a secure amount for life, based on the number of years you have worked for an employer and the salary you earned there. However, many companies beyond the VCSE sector have moved away from DB schemes to defined contribution (DC) schemes, and some charities have done likewise.

Net unrestricted income was chosen as a metric for this report because it represents income that can either be used to support a charity’s activities or to fund its pension scheme. Restricted income only counts towards this if designated to be used for pensions.

The report also revealed the average pension deficit was worth 18% of unrestricted reserves. When a pension deficit is identified, the Pensions Regulator needs the charity and its pension scheme trustee to create a recovery plan; if the charity receives local authority funding as an essential part of its income, someone from the local authority must also have input in the recovery plan.

Alastair Russell-Smith, partner and head of corporate DB consulting at Hymans Robertson, said: “Charities are facing the double whammy of fundraising pressures hitting income at the same time as the Pensions Regulator wants them to put more cash in to their pension schemes." 

On a positive note, 7 of the 40 charities in the report had a pension scheme funding surplus; the average funding level was 86%.

Hymans Robertson has suggested the minimum funding standards set by the Pensions Regulator may cause anxiety or incur additional risks for charities. Its report also includes a list of recommended actions to take.

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