Alistair Russell-Smith: Strong funding is not the finish line
Spence & Partners has published its third annual DB Pensions Benchmarking Report.
The report, which analysed accounts of 50 charities and not-for-profits in England and Wales with larger defined benefit (DB) schemes, found a "shift" across schemes away from deficit management to endgame decision-making.
It found average running costs "remain significant" at £600,000 a year, and median costs were also up 33% over two years, with almost half (48%) of charities no longer paying deficit recovery contributions, compared to 44% last year.
Funding levels remained strong at 101% on an FRS102 basis, with low dependency deficits "relatively stable" at 10% of unrestricted charity reserves, the same as last year, as did contribution levels at 1.4% of unrestricted income.
It also found only 35% of charities with an accounting surplus were "fully recognising the surplus on a balance sheet", noting this showed some are unable to easily access a DB surplus, suggesting government intervention to make this easier "may help here".
The report said charities should review their endgame plans, with alternatives including consolidators and run-on being options in some cases, especially for larger schemes.
In addition, charities can also "simplify the running" of their schemes, especially with increasing costs, partly as a result of data and risk transfer projects, with options including to review service providers for value, simplifying governance processes, and considering packaged solutions for cost.
Spence head of the charity and not-for-profit sector pensions practice Alistair Russell-Smith said: "Charities have made significant progress in strengthening their DB pension funding positions.
"But strong funding is not the finish line – it's the starting point for a new set of strategic decisions around endgame planning, cost management and governance."
He added: "Many charities are in a stronger position than they have been for decades. But without a clear plan, there is a risk that opportunities are missed or costs drift unnecessarily. Now is the time for charities and not-for-profits to take stock and define their endgame strategy."
