The 40 largest charities in England and Wales have seen their reserves increase by almost a quarter over the past year, according to a new report.
Consultancy Hymans Robertson reported that the charities’ combined reserves grew by £9.5bn (24%) in the 2021-22 financial year to £49bn, “largely due to strong investment performances”.
Its annual charity benchmarking report also found that the charities’ combined defined benefit (DB) pension deficits rose by £2.5bn year-on-year to £12bn.
But due to reserves growth, the charities’ average pension deficit was worth 10% of their unrestricted funds, compared to 23% the year before.
‘Unparalleled market volatility’
The report states that DB pension schemes sponsored by charities “continue to require substantial funding” as they increased to £12bn.
It says: “The funding levels of these pension schemes have been impacted by recent market volatility which has both presented challenges and brought opportunities.”
There has also been around a 7% rise in average funding level, “primarily driven by positive return on pension scheme assets”.
The research found 60% of charities have closed their DB scheme to accrual, and the average charity pays 3% of net unrestricted income into its pension scheme.
It states that the charities’ annual income was £14bn, which is down slightly from last year.
The report states 2022 brought “unparalleled market volatility for pension schemes” which meant plenty of challenges for pension scheme trustees.
However, the market volatility led to some “excellent pricing opportunities for schemes already in the market, and, for other schemes, significant improvements in their funding position such that their long-term goal to buy-out is now a more viable target in the short term”.
Researchers expect 2023 is going to be “a very busy year in the risk transfer market as many schemes re-assess their end game journey plans and seek quotations”.
“Charities should engage with pension scheme trustees to understand the impact of inflation on their scheme, and consider the cost of benefits accruing in the wider scheme funding plan.” the report says.
The reporting dates for the charities’ disclosures used for this report spanned the period March 2021 to August 2022, with the majority ending in December 2021 and March 2022.
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