Charities' pension deficits make the news (again)
The Sunday Times is the latest newspaper to highlight the pension funding problems facing much of the UK charities sector. The latest edition reports that the top 40 charities have a combined £5.5bn
The Sunday Times is the latest newspaper to highlight the pension funding problems facing much of the UK charities sector. The latest edition reports that the top 40 charities have a combined £5.5bn pension black hole in their accounts.
Clearly this is a source of concern, particularly for charities dependent on public donations. People who give to charity expect their donations to be used for the core work of the charity, not to fund pensions for employees who may have left the charity many years before. Also, charities that need to repair deficits in their pension schemes will have a higher cost base that may make them less competitive in the scramble for contracts for the provision of services funded by local and central government.
But the problem should be put in perspective. In May last year the Charity Commission published its review of the pension deficits of a random selection of 97 of the 740 largest charities. It found that the deficits represented only 4% of their total unrestricted funds. The Commission considered that seven of the selection faced significant challenges because their pension scheme deficits were particularly large compared to both their unrestricted funds and annual income. Interestingly, all seven were participants in the local government schemes. This possibly points to weaknesses in the way the charities agreed their service contracts with the relevant local authorities. Also, a common strategy for reducing funding issues, closing a scheme to existing members, is not usually available for charities that have taken on ex-local authority employees under such contracts.
Clearly this is a source of concern, particularly for charities dependent on public donations. People who give to charity expect their donations to be used for the core work of the charity, not to fund pensions for employees who may have left the charity many years before. Also, charities that need to repair deficits in their pension schemes will have a higher cost base that may make them less competitive in the scramble for contracts for the provision of services funded by local and central government.
But the problem should be put in perspective. In May last year the Charity Commission published its review of the pension deficits of a random selection of 97 of the 740 largest charities. It found that the deficits represented only 4% of their total unrestricted funds. The Commission considered that seven of the selection faced significant challenges because their pension scheme deficits were particularly large compared to both their unrestricted funds and annual income. Interestingly, all seven were participants in the local government schemes. This possibly points to weaknesses in the way the charities agreed their service contracts with the relevant local authorities. Also, a common strategy for reducing funding issues, closing a scheme to existing members, is not usually available for charities that have taken on ex-local authority employees under such contracts.