The average charity in the UK has a DB pension deficit proportionately higher than that of the average FTSE 350 company, Hymans Robertson has found.

In its report, DB pension funding in the charitable sector, Hymans Robertson revealed that 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 that 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”.

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