Charity DB schemes approach full funding

Funding levels at charity defined benefit schemes have improved substantially over the past five years, according to new data.

A survey by Hymans Robertson has shown that DB schemes connected to charities are now 99% funded in aggregate, up from 81% five years ago.

While combined assets are lower than five years ago, liabilities have also fallen to around £7bn in aggregate. The financial position of major charities has also improved, with total income reaching £15bn – up from £12.6bn in 2019.

“2024 continues to be busy for risk transfer and charities should engage with their pension scheme trustees to re-assess their endgame plans for their schemes.”

Unrestricted reserves – which can be spent on any part of a charity’s operations – are around £40bn across the charities in Hymans Robertson’s survey, up from approximately £36bn in 2019.

Heather Allingham, actuary and head of pensions consulting for charities at Hymans Robertson, said: “Although some DB schemes may have faced some challenges because of the market volatility at the end of 2022, many charities are now seriously able to consider buyout of their DB pension scheme with an insurer.

“2024 continues to be busy for risk transfer and charities should engage with their pension scheme trustees to re-assess their endgame plans for their schemes.”

Charities including Leprosy Mission International and the Medical Protection Society have secured bulk annuity transactions this year, with Legal & General and Rothesay Life respectively.

Allingham added that some charities might seek to run on rather than move towards buyout, and encouraged organisations to engage with their scheme trustees to plan out their endgame strategies.

“Finally, charities and their pension scheme trustees should be preparing for the new funding code of practice with a particular focus on how to best measure the covenant strength of the charity,” she said.

“We would suggest that charities might want to focus on their affordability levels and cashflow reliability period.”

Hymans Robertson analysed DB schemes connected to the 40 largest charities in England and Wales.