Since the Charity Finance Group published the previous edition of its Pensions Maze report in 2008, much has changed in the pensions landscape. However, the challenge of managing your pension deficit has remained constant. There are two major risks: the actual liability and the impact it will have on your stakeholders. There isn't room here to cover all the bases, but I can provide a flavour of what you can do to limit your exposure.
I would describe the current state of affairs for charities that have defined-benefit schemes as a "pensions time bomb". So how do you don your special forces uniform and set about defusing the explosives?
Reconnaissance Establish the size of the threat. Do you have any legacy schemes with deficit exposure – for example, former staff members in open, multi-employer, non-segregated schemes – that you had not spotted? It sounds basic, but our work has demonstrated that getting to grips with the full extent of the liability is no mean feat.
Evacuate the building There are insurance solutions available whereby the charity is able to settle all of its liabilities with a "buyout" or secure an annuity policy with a buy-in", which can provide a cost-effective solution that removes volatility and transfers risk away from the scheme.
Crowd management Whatever you do, consider your relationships with staff. Committed staff members might be more amenable to changes intended to reduce the charity's exposure. If you concentrate on the technical excellence required to defuse the bomb but fail to communicate what you're doing, you risk the situation blowing up in your face.
Slow the countdown Many charities are extending their recovery plans. Deciding where the balance lies between clearing debt quickly and eating deeply into your resources for charitable spend is up to your charity. Consider what the likely reaction of your stakeholders will be.
Cutting the right wire In both the private and third sectors, the trend has been to close final-salary, defined-benefit schemes. Many schemes that have remained open will have reached, or will soon reach, the tipping point between positive impact and potential for financial risk – in which case, the only sensible step is to close the scheme. Of course, there might be good reasons to swim against the flow, but don't let inertia be the reason; give it proper consideration.
The controlled explosion If you remain in the scheme or continue to permit future accrual, ensure that this is a better option for the charity than the alternative of closure. Maybe pension increase exchange is suitable for you: this is an approach that gives pensioners an increase in their pension now in return for giving up non-statutory pension increases in future.
Caron Bradshaw is chief executive of the Charity Finance Group