Smaller charities are being left behind in the UK pensions landscape as larger organisations benefit from improving defined benefit (DB) funding positions, according to research from First Actuarial.

The firm’s Charity Survey 2025, which analysed the published accounts of 300 UK charities sponsoring their own DB schemes, found a stark divide between well-funded schemes with the potential to release surplus assets and smaller schemes facing mounting financial pressures.

Its survey suggested that up to £400m could potentially be returned to charities from well-funded DB schemes and redirected towards charitable objectives.

However, it also revealed that many smaller schemes lacked the scale to operate efficiently, with fixed running costs consuming a disproportionate share of assets.

First Actuarial scheme actuary, Emily Brown, said the findings painted a “troubling picture of haves and have-nots” across the charitable sector.

“Smaller charities face lower pension scheme funding levels and disproportionately high running costs,” Brown continued.

“The survey highlights the need for schemes in the charitable sector to choose whether to run on in a cost-effective way, or actively consider buy out with an insurer.”

Meanwhile, the research also found that charities were spending around twice as much on defined contribution (DC) arrangements as on DB schemes, reflecting a shift in focus towards current employees and away from legacy DB liabilities.

DC contributions accounted for around 4 per cent of total staff costs on average, exceeding statutory minimum levels but still falling short of benchmarks such as the Living Pension recommended by the Living Wage Foundation.

Despite widespread commentary on improved DB funding since 2022, the survey warned that headline figures may mask underlying weaknesses.

It found that three in five charity DB schemes will not generate sufficient asset returns to meet ongoing scheme-running expenses, particularly among smaller schemes with assets below £50m.

In addition, only around a quarter of charity-sponsored DB schemes were found to be in surplus on a buyout basis, compared with more than half across the wider DB universe, underlining the challenges charities face in reaching insurer-backed endgames.

The survey also explored the implications of The Pensions Regulator’s new funding code, which takes effect for valuations from September 2024 and introduces stricter requirements on long-term objectives and low-dependency funding.

First Actuarial noted that the inclusion of explicit expense reserves under the new framework was likely to place additional pressure on smaller schemes.

Brown concluded that smaller charities had often been overlooked in industry analysis and said First Actuarial planned to repeat the survey annually.

“As the actuarial partner of the Charities Pension Club, we believe we’re ideally placed to carry out this survey,” she added.

“We’ll work with clients to benchmark their funding position against similarly sized charities and, as always, support smaller schemes to run as efficiently as possible.”

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