Trends in Charity DB Pension Schemes
- 44% of charities are no longer paying deficit recovery contributions
- 40% of charities with an accounting surplus (FRS102) are fully recognising it on their balance sheet
- Annual pension scheme running costs average £500,000 per annum
Our latest research analyses the accounts of 50 charities in England & Wales with larger DB schemes and with year ends between 30 April 2023 to 31 July 2024.
In comparison to last year’s results, average running costs have increased, and the number of charities no longer paying deficit contributions continues to rise, reflecting improved pension scheme funding levels.
Focus shifts to endgame and efficiency
The report details how, in response to strong funding positions, charities should be turning their attention to endgame planning. 20% of those analysed have already completed a partial buy-in of some liabilities, and 14% are within 5% of full funding on a buy-out basis.
For those charities considering running on, the Government’s announcement in January this year to make surplus access easier in ongoing schemes could be a deciding factor.
Irrespective of a scheme’s endgame, complete any necessary data project work and automation as this generates benefits for both buy-out and run-on. Clean and complete data gives a cost effective buy out process, efficient scheme management in a run-on scenario and a smooth connection to Pensions Dashboards.
The requirements of the new funding regime should be reasonably straightforward for better funded schemes. For poorer funded schemes the new DB funding code will be significant. New terminology and increased regulatory scrutiny mean these schemes should engage early in the valuation process and understand the levers available to them to best manage the new requirements.
Against the backdrop of deficit contributions turning off and the new funding regime requiring the addition of an expense reserve, we recommend reviewing operational processes and costs to ensure they are delivering value for money. Consider shrinking the trustee board, using the latest systems and a simplified governance model. Spence has estimated that running costs could be cut by 30% with these actions – generating an average saving of £165,000 per year.
Alistair Russell-Smith, Head of the Charity and Not-for-Profit Practice at Spence & Partners, comments: In my view there is now an opportunity for charities and their pension scheme trustees to simplify their DB pension arrangements. This can be achieved by using Pensions Dashboards as a springboard to fully embed technology and automation into the administration of your DB scheme. With the right systems, this can then flow through to the effective use of actuarial technology to comply with the new DB funding regime cost effectively. Some charities may even be able to access surpluses from their DB schemes with forthcoming regulatory changes.
Download the DB Benchmarking Report
