Charities should consider deferring pension contributions to preserve short-term funds, a new report suggests.
Defined Benefit Pension Funding in the Charitable Sector, published by the pensions consultancy Hymans Robertson, says the Covid-19 pandemic has placed charities under significant financial strain, so they need to conserve cash.
The report advises that charities consider deferring pension contributions to save money in the short term.
“The speed and scale of the Covid-19 crisis has had a severe financial impact on many charities,” it says.
“Cash conservation is therefore crucial and, understandably, this means some charities are looking to defer pension contributions.”
It says the Pensions Regulator has said that suspending pension contributions might be appropriate in some circumstances.
There needs to be a strong business need for a deferral and it should be for no longer than an initial three months, the report adds.
“Charities need to be aware that, while deferring pension contributions provides short-term respite, the contributions will ultimately still need to be paid,” it says.
“In addition, pension scheme trustees need to ensure they are being treated equitably and sharing the pain with other stakeholders.”
The report, which is based on analysis of the defined-benefit pension exposures of the largest 40 charities in England and Wales by annual income, found those charities had aggregate defined-benefit liabilities of £9bn against combined reserves of £42bn and £13bn in total annual income.
It says that the average pension deficit across the 40 charities was 19 per cent of annual net unrestricted income.
The average defined-benefit scheme funding level was 92 per cent, with 25 per cent of the charities having pension surpluses.
One charity, Barnardo’s, had a deficit that exceeded its unrestricted reserves, according to the report, while the Church Commissioners for England was the only charity with a deficit that exceeded unrestricted income.