DSC

Charity pension deficits higher than FTSE 350 firms'

Written by Jack Gray
01/05/19

The average charity in the UK has a defined benefit pension deficit proportionately higher than that of the average FTSE 350 company, a new report has revealed.

A new report by Hymans Robertson, DB pension funding in the charitable sector, the firm revealed the average UK charity has deficits equating to a fifth (18 per cent) of their unrestricted assets.

By comparison, the average FTSE 350 company has a DB scheme deficit that is just 1 per cent of market capitalisation.

Hymans Robertson partner and head of corporate DB consulting, Alistair Russell-Smith, said charities face the “double whammy” of fundraising pressures impacting income while The Pensions Regulator is looking for them to put more money into their pension schemes.

However, he also believed that there are factors that should help charities and their scheme trustees to strike the right balance.

“For example, charities tend to have far less covenant leakage than corporates. They clearly don’t pay dividends, they often have no debt, and there tends to be a strong focus on preserving reserves.

“All of this means pension scheme trustees may have more confidence in the long term covenant support than with a corporate,” he said.

Russell-Smith also noted that some charities had unencumbered assets, such as property, which can be used to provide extra covenant support to their schemes.

He added: “The long term covenant, bolstered where possible with security over charity assets, can support a longer recovery period for the pension scheme, freeing up cash for charitable purposes.

“All of this helps set a sustainable funding and investment strategy for the pension scheme with appropriate contingency plans in place.”

Charities were encouraged by Russell-Smith to seek consolidation solutions, such as commercial consolidators and DB master trusts, “which can reduce scheme running costs by as much as 50 per cent compared to running your own scheme, but crucially do not expose charities to the last man standing risk of traditional multi-employer schemes”.



Related Articles


Diversity
Lauren Weymouth talks to Jeremy Wells of Newton about whether charities think diversity is adequately reflected on their trustee boards

  • Charity Times Annual Conference Event Date: 2nd May 2019 Event Deadline: The Waldorf Hilton, London
  • Better Society Awards Event Date: 23rd May 2019 Event Deadline: 25th January 2019 London Marriott Hotel, Grosvenor Square, London
  • Half Day Investment conference Event Date: 11th July 2019 Event Deadline: 1 Birdcage Walk Westminster, London SW1H 9JJ For booking and enquiries email linda.libetta@charitytimes.com
  • Property Roundtable Event Date: 19th June Event Deadline: Searcy’s at the Gherkin For booking and enquiries email linda.libetta@charitytimes.com
  • Charity Times Awards Event Date: October 2019 Event Deadline: Park Plaza, Westminster Bridge, London
Most read stories...