Pensions Week this second week of June have revealed that some 42% of charity DB schemes are open to accrual, compared to just 19% of the FTSE 100 companies in the UK that offer accrual to “a significant number of employees”.
The charity sector is out of step with industry and it potentially reveals an alarming lack of discipline in Charity Sector governance. According to Charity mouthpiece The Third Sector the top 20 charities were sitting on £600m pensions deficit in 2009 (read more here), but are now sitting on over twice that figure, at a ballooning £1.5bn, despite the rising equity markets.
Worse still some 40 of the 50 largest UK charities have giant ongoing deficit commitments. A report by Hymans Robertson in 2017 quoted that the top 40 charities in England and Wales had pension liabilities totalling £7 billion. This figure is set to increase as many pension schemes are undergoing their triennial actuarial valuation processes. A combination of the number of employees still building up retirement benefits, life expectancy increasing, and persistently low gilt yields means the outcome of many of these valuations will be a growing deficit.
However none of these largest 50 charities have a DB scheme open to new members and even since 2016 seven have closed their schemes to future accrual.
NSPCC is looking at a pensions deficit of about £50m. Ian Chivers, the FD said: "By deciding to close the scheme to future accruals, we've dropped our liability to £20m. That's still sizeable, but manageable. Also, since we've now closed the scheme, we will not be adding further to the risk.”
The National Trust said it had agreed to pay off a deficit of £68m. The charity said it had agreed with the Pensions Regulator and the scheme's trustees that it would pay the deficit off over 25 years.
RNLI, Barnardo's, the British Heart Foundation, Guide Dogs and Macmillan Cancer Support are all facing massive shortfalls. Only one charity in the top 20 has a fully funded defined benefit scheme.
IFAC believe that the DB transfer market will only grow from here. New proposals from FCA to tighten up qualifications and to force transfer advisers to consider more fully the investments involved as well as the pension transfer itself will only serve to raise the bar and reduce failure rates that impact on FSCS. The FCA also want advice to stay put to be in writing via an SR. This is good news for advisers as they should be charging for this sort of casual advice often given verbally. This marks the end of the 20 year era of being told by the FCA that advice to stay put should be the default option and could be carried out by non pension transfer qualified staff.