Defined benefit pension liabilities on the schemes of 40 of the UK's largest charities total almost £5bn, as calculated on an FRS 17 basis, exclusive new research by Charity Finance has revealed.
And backing these liabilities are pension scheme assets of around £4.2bn, resulting in an overall aggregate deficit of £800m.
Among household-name charities with the largest deficits are Barnardo’s, with a pension scheme deficit of £73m, and RSPCA with £42m.
This detailed investigation into the pension arrangements of the UK’s largest 50 charities is published this week in the May edition of Charity Finance magazine.
In light of the results, pensions specialist David Davison has accused some charities of ‘burying their heads’ about the extent of the deficit on their defined-benefit schemes.
Davison, director and owner of actuarial firm Spence & Partners, says that some organisations’ relationships with their employees make it difficult to face the hard facts.
Many charities have difficulty dealing with their pension scheme legacy, according to Davison. “Charities often seem reluctant to deal with it head-on as they are, in general, paternalistic towards staff, which can mean that they keep defined-benefit schemes open for too long,” he told Charity Finance.
The research, undertaken in conjunction with BDO, reveals that 40 of the largest 50 charities have defined-benefit (DB) pension schemes. Although only six of these charities now have a DB scheme open to new entrants, all but five are still open to future accruals for existing members.
Extent of the problem
If the tradable market value of the total liabilities (ie the insurance company ‘buyout’ price) is considered, then the liabilities’ value for the 40 DB schemes is £8.9bn, creating an aggregate deficit of £4.7bn.
If Wellcome Trust is excluded from the analysis (due to its size it is an outlier), unrestricted funds held by the 40 charities in their own balance sheets are £3.7bn, compared to the insurance company buyout deficit of £4.7bn.
Richard Farr, head of pensions advisory at BDO said: “If all of these organisations wanted to remove the pension liabilities from their balance sheets today, they would not be able to do so. Although this is a hypothetical scenario, it illustrates that the level of ‘market-priced’ underfunding within the pension obligations of these charities is bigger than the organisations themselves.”
Subscribers to civilsociety.co.uk can read the full analysis here.
