Top 20 charities 'are sitting on £600m pensions deficit'

Pension schemes may have only three quarters of the assets they need, experts warn

Clockwise from top left: NSPCC, RNLI, Guide Dogs and the National Trust
Clockwise from top left: NSPCC, RNLI, Guide Dogs and the National Trust

The country's largest fundraising charities could be looking at a pensions deficit totalling hundreds of millions of pounds, according to estimates from pensions actuary Alexander Forbes.

The estimates, based on past accounts from the 20 largest fundraising charities, predict current shortfalls worth more than a combined £600m. Some organisations owe more than £100m on their own.

Alexander Forbes also predicts that charity schemes have only three quarters of the assets needed to meet their obligations.

Colin Mouque, director of actuar-ial services at Alexander Forbes, said his department had looked at charities' most recent sets of accounts and then projected forward to the present day based on changes in market conditions.

"The situation may be worse than we have estimated because the standard calculations used to work out pensions liability are based on corporate bond yields, which are unusually high at the moment," he said. "If those dropped, the shortfall would be greater.

"Conversely, I believe the situation could well become less serious as markets recover," he added.

If charities continued to pay into their pension schemes at current levels, many could end up having to dedicate more than a tenth of their donations to the pensions pot to meet their legal obligations to the Pensions Regulator, he said.

Ian Chivers, finance director of the NSPCC, said his charity had been looking at a pensions deficit of about £50m but had last month responded by closing its pension scheme to future accruals, meaning that even employees with a defined benefit pension scheme would no longer be able to increase the size of that pension pot.

"We had a deficit due to a number of factors, chiefly the longevity of staff and the poor performance of the markets," he said. "We decided that level of deficit wasn't appropriate, and too much of donors' funds were going to pay our pensions.

"By deciding to close the scheme to future accruals, we've dropped our liability to £20m. That's still sizeable, but manageable. Also, since we've now closed the scheme, we will not be adding further to the risk.

"We were looking at spending 10p in every pound donated on pensions. That is now more like four or five pence. We hope our donors will think that's appropriate."

Keith Hickey, chief executive of the Charity Finance Directors' Group, said he would be "very surprised" if more charities did not follow the example of the NSPCC.

"In the current climate many charities will have a deficit," he said. "The charity sector is going to have to think about whether the risks of defined benefit schemes are at a level they can cope with.

The National Trust said it had agreed to pay off a deficit of £68m. The charity said it had agreed with the Pensions Regulator and the scheme's trustees that it would pay the deficit off over 25 years.

Mark Hallam, finance director of the RNLI, said its defined benefit scheme was closed to new members from January 2007 but remained relatively well funded, although investments had suffered during the recent market downturn.

Barnardo's, the British Heart Foundation, Guide Dogs and Macmillan Cancer Support all declined to comment. Save the Children was unable to provide precise details of its current deficit.


10p - The amount in every pound donated the NSPCC would have had to spend on its pensions pot if it had not reformed its schemes

1 - The number of charities in the top 20 with fully funded defined benefit schemes. Three others offer only defined contribution schemes

25 years - The length of time the National Trust will take to pay off its current pensions deficit

£100m - The pensions deficits of some individual organisations are already thought to exceed this


Most charities have historically offered defined benefit pension schemes, where the charity promises a fixed benefit to staff in retirement, often linked to their final salary.

Such schemes often have deficits because retired employees are living longer, or because investments have underperformed.

They are now usually closed to new entrants but many charities still pay into the schemes of existing members.

New employees joining a charity usually have the right to join a defined contribution scheme, where the charity makes a contribution, but does not guarantee a fixed sum when the employee retires.

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