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Pension liability of top 5,000 UK charities totals £1.66bn

Finance | Vibeka Mair | 18 Oct 2010

New research has revealed that of the top 5,000 UK charities, 522 have pension liabilities totalling £1.66bn.

The survey shows the charity sector reduced its pension deficit between 2006 and 2008 from £1.9bn to £1.1bn but the recession during 2008 and 2009 has caused it to rise again.

The report says charities operating pension schemes may have to plug this hole from other income sources, including donations) to ensure that all scheme members are provided for during retirement.

It also notes that charities who have provided schemes based on the employee’s final salary (defined benefit), rather than the value of a pot of investments managed by a third party (defined contribution), appear to be suffering the most.  The current problem is that poor investment conditions have widened the pensions funding gap to worrying proportions, affecting total fund values.

Closer inspection of the ten charities with the largest pension liabilities indicates that their deficits are not just down to decreases in the values of the pension scheme assets, but also increases in actuarial losses. This combination has further increased the closing obligation of the pension funds.

In this way six of the ten organisations listed in figure 1 have experienced decreasing values of pension scheme assets and seven have suffered an increase in obligations.

The charities with the largest pension liabilities include the National Trust, which experienced an actuarial loss of £71.734m on pension plan assets resulting in a closing obligation of £336.256m.

The National Trust stated: “The stock market fall led to a deficit in the final salary pension scheme, and this will be addressed through the planned increase in contributions to the Pension Scheme over the next 25 years.”

Barnardo’s saw its pension liability rise by £17.4m over the previous year, resulting in a closing obligation of £364.7m.

The report by CharityFinancials.com concludes: “As in most economic cycles, the markets will bounce back and when they do, there will be an increase in the value of pension scheme assets. This will go some way towards reducing the overall long-term liability in years to come. In the meantime, charities and social enterprises have a major challenge in managing the impact of this potentially huge problem.”

>>View the charities with the largest liabilities<<

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