The pension deficits of the largest charities are worth over a fifth of their unrestricted reserves on average, a report has found.
Analysis by consultancy Hymans Robertson also found the pension deficits of the largest charities are worth 33 per cent of their unrestricted income on average.
The firm analysed the accounts of the largest 40 charities in England and Wales as listed by the Charity Commission website at February 2018.
These charities have a combined £30bn of reserves and £12bn of annual income, and support aggregate defined benefit pension liabilities of over £9bn.
It found that the average charity in this bracket pays 3 per cent of net unrestricted income into its pension scheme.
The firm also found that 18 per cent of these charities have a pension surplus and 58 per cent have closed their schemes to future accrual.
Alistair Russell-Smith, partner at Hymans Robertson, said charities should expect more regulatory scrutiny over their pension strategy in the coming years.
He said: “High profile pension scheme failures in recent years, such as BHS and Carillion, are leading to increased regulatory pressure to fund DB schemes whilst the employer has the capacity to do so.
“This is coming through in the ‘2018 Annual Funding Statement’ from the Pensions Regulator, which is a precursor to an update to the code of practice on DB funding. In addition, the Regulator has announced further scrutiny on schemes with assets of under £80m.
“There is a new requirement for these schemes to provide additional disclosures with the next triennial valuation submission. This is due to concerns around governance and conflicts of interest in some smaller schemes.”
He also recommended that charities switch from using pension trustee boards to a sole professional trustee, to “enable quicker decision making and reduce running costs”.
Russell-Smith also said charities should make used of the new “deferred debt arrangement” which allows them to exit multi-employer defined benefit schemes without having to pay an immediate Section 75 debt payment.