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, according to the May edition of Charity Finance magazine. 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.
The research, undertaken in conjunction with accountancy firm 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.
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.”
Author: Pensions WorldPensions World is the leading monthly magazine for pensions professionals published by LexisNexis.