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Pensions Investment

Spence Charity DB Pensions Report now out

A new report by Spence indicates that high levels of scheme funding are expected to drive a renewed focus on end-game planning for DB schemes. Read on for the results of the analysis and to download the report...


New research from CFG's corporate partners, Spence & Partners (Spence), reveals that Charity DB schemes have seen funding levels rise to 104% on an FRS102 basis and 83% on an insurance buy-out basis.

Spence analysed the accounts of 50 charities in England and Wales with larger DB schemes and with year-ends between 30 April 2022 to 31 July 2023. In aggregate, this covers £8.5bn of DB assets.

The study reveals that buy-out deficits now average only 21% of unrestricted charity reserves, as rising yields have shrunk DB schemes relative to charity balance sheets.

For some charities, running on schemes to access a surplus may now be more viable, utilising initiatives being rolled out off the back of the government’s Mansion House reforms.

The research found that 26% of charities are no longer paying deficit recovery contributions, with this proportion expected to rise as more deficit recovery plans come to an end.

Review your end-game plans

With deficit contributions ceasing, focus for charities will shift to end-game planning and reducing running costs.

Spence is advising charities to review their end-game options in light of improved funding levels and new options coming onto the market. Insurance buy-out will now be in reach for some schemes.

Alistair Russell-Smith, Head of the Charity and Not-for-Profit Practice at Spence & Partners, comments: "Funding levels for DB schemes in the charity sector have improved dramatically in the last two years with rising yields. Many schemes are now fully funded on accounting and Technical Provisions bases.

"Furthermore, higher yields have shrunk schemes, meaning charities are now better placed to support them. Charities should review their DB end-game plans."

Alistair warned that the research found that running costs can get very high if left unchecked - an average £450,000 a year.

"Whilst some of this is justified with data work such as the need to equalise GMPs," says Alistair, "some of it can be removed by using the latest systems and a simplified governance model.”

Spence say that some of the costs could be reduced significantly, by as much as 30%, generating an average saving of £135,000 per year.

Waiting game for some

Charities with smaller schemes should consider waiting for the public sector consolidator from the Pension Protection Fund (PPF) to come to market from 2026.

Charities with larger balance sheets that already manage their own investments are being urged to consider running on their DB scheme to access surplus assets in the scheme.

The DWP is consulting on regulatory developments to make it easier for sponsors to access surplus assets in DB schemes, and charities don’t have to pay the 25% tax on pension scheme surplus refund, having not had corporation tax relief on the pension contributions.

Spence has calculated that if the DB schemes in the research were run on for the next 10 years, they would generate surplus assets for the sponsoring charities equal to an average of 8% of a charity’s unrestricted annual income or 12% of their unrestricted reserves.

Russell-Smith concludes: "After years of pain, cost and liability from DB schemes, charities could potentially start viewing their schemes as an asset rather than a liability."


Download and read the full Spence Charity DB Pension Report.

Read Alistair Russell-Smith's latest article on the latest developments that are impacting DB scheme end-game planning.


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