Largest charities’ pension deficits worth a quarter of unrestricted reserves, shows report

30 Sep 2022 News

The average pension deficit of large charities represents 23% of their unrestricted reserves, a report has shown.

Financial consultancy firm Hymans Robertson looked at the defined benefit (DB) of the 40 biggest charities in England and Wales by income.

Its analysis, published yesterday, also found that on average the pension deficit of these charities is worth 26% of their annual net unrestricted income.

The 40 charities had a combined £39.5bn of reserves this year, a drop on the £46bn recorded in 2021, which suggests that charities may have had to draw down on their savings to continue supporting their charitable activities, the report said.

Despite this, aggregate DB liabilities have remained at around £9.5bn in the past two years. 

Annual income for these charities stood at £14bn, a slight increase on last year. The report said that a large portion of this income is Covid-19 relief funding. “Underlying income from fundraising and charitable activities generally fell,” it added.

It found that the average charity in this bracket pays 2% of net unrestricted income into its pension scheme.

Meanwhile, a third of the 40 charities have a pension surplus while six in 10 have closed their schemes to accrual.  

Charities’ pensions schemes in a ‘challenging position’

Heather Allingham, actuary and head of pensions consulting for charities at Hymans Robertson, said: “When combined, the problems around income dropping, the fall in reserves and the lack of movement in liabilities puts charities’ pensions schemes in a challenging position. 

“Ongoing communication on a few key things would help manage future pressures and maintain the delicate balance of a good level of charitable support and the ability to fund pension deficits.”

Allingham argued that in spite of the challenges facing charities, issues such as inflation “may not have as detrimental an impact on some charities’ pensions schemes as others”. 

She said: “High inflation could feel like bad news, however pension increases, whether retail price index (RPI) or consumer price inflation (CPI)-linked, are usually capped at 5% or 2.5% on a year-on-year basis. So, schemes that have hedged against uncapped RPI, could see a beneficial impact on their funding positions.”

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