Consultant David Davison says funding shortfall could be 'considerably worse' than The Pension Trust's calculations
Charity employers in The Pensions Trust’s Growth Plan schemes have been told the schemes’ deficit has risen by 20 per cent since last year.
In a letter sent out last month, the pension provider told more than 1,500 charities enrolled in its Growth Plans One, Two and Three – a group of linked multi-employer pension schemes – that the scheme’s deficit had increased due to "lower than expected returns on the assets and a reduction in gilt yields".
The deficit is now £234m, leaving the scheme 77.3 per cent funded on a withdrawal basis, one method of calculating any shortfall.
The trust also said that the official figures were based on estimates made last September, and that the deficit was likely to have risen by about 9 per cent since then, making it closer to £255m today.
It said charities that wanted to leave the scheme would have to pay 20 per cent more than in previous years, assuming their own circumstances were unchanged.
The situation is more serious for charities with members enrolled in Growth Plans One and Two, which are defined benefit schemes with a substantial deficit.
Charities are not likely to have to fund a shortfall on an ongoing basis if they only have members in Growth Plan Three, which is technically considered a defined benefit scheme but which the trust considers to be fully funded.
It is possible that employers would have to pay a debt in order to withdraw.
The trust said it would seek extra contributions from employers remaining in the scheme to meet the deficit, although these will depend on the circumstances of the individual employers, and may be more or less than the 20 per cent extra cost of withdrawal.
David Davison, a pensions consultant at actuarial firm Spence & Partners, said that although the scheme was 77.3 per cent funded, the position was likely to be considerably worse for members of Growth Plan One and Two.
He said that because Growth Plan Three was fully funded and the deficit was averaged over the three schemes, this made the position for Growth Plan One and Two look better than it was.
However, he said he had greater sympathy for employers in Growth Plan Three, which was originally intended to be a "money purchase" scheme, meaning employers contributed nothing and could not build up a deficit.
It has since been redefined as a defined benefit scheme thanks to retrospective changes in pension law. This means that in future, employers may be asked to share some part of the Growth Plan deficit.
"Employers would want their staff to transfer out of this scheme," Davison said. "But it’s very difficult to persuade your employees to change their pension plan."