Pension deficits at top charities higher than corporate counterparts, says report

Analysis of the 40 largest charities by income that have defined-benefit pension schemes found an average deficit of 18 per cent of unrestricted assets

Pension deficits at the UK’s largest charities are running at significantly higher levels than at their counterparts in the private sector, with pension deficits at some of the largest charities equalling almost a fifth of their assets, new research shows.

An analysis by the pensions firm Hymans Robertson of the 40 largest charities by income that have defined-benefit pension schemes found an average pension deficit of 18 per cent of unrestricted assets.

In comparison, the average FTSE 350 company has a defined-benefit pension scheme deficit of 1 per cent of its market capitalisation, according to the analysis.

Hymans Robertson found last year that the average pension deficit was 33 per cent of annual income and 22 per cent of unrestricted reserves. 

This year's research identified one charity – Barnardo’s – that had a pension deficit greater than its unrestricted reserves.

The average pension deficit among the charities surveyed was equivalent to 24 per cent of annual net unrestricted income, the analysis found.

Researchers found that 3 per cent of total income was paid into the average charity pension scheme.

Latest research by Third Sector found that the combined pension deficits of the top 155 charity brands fell by £300m last year to £1.3bn overall.

In a report about the Hymans Robertson analysis, called DB Pension Funding in the Charitable Sector, Alistair Russell-Smith, partner and head of corporate consulting at Hymans Robertson, said that charities should consider consolidating their defined-benefit pension schemes.

"Unencumbered assets" could also be used to support defined-benefit funding, Russell-Smith said, which would lower pension scheme cash costs by supporting longer recovery plans.

He also warned of greater regulatory scrutiny by the Pensions Regulator in the wake of high-profile pensions failures such as the collapse of the outsourcing firm Carillion.

"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 into their pension schemes," Russell-Smith said in a statement.

But he added that there were "bright spots" for charities, despite the other findings in the report.

"Charities clearly don’t pay dividends, they often have no debt and there tends to be a strong focus on preserving reserves," he said.

"All of this means pension scheme trustees might have more confidence in the long-term covenant support than with a corporate."

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