The largest 40 charities with defined benefit (DB) pension schemes have experienced a rise in their combined reserves, according to Hymans Roberson’s annual report on DB pension funding in the charitable sector.
The report finds that the combined reserves of the largest 40 charities by income in England and Wales that sponsor DB pension schemes, rose to £50bn in 2022, an increase from £39bn in 2019.
Aggregate DB liabilities are around £7bn, which is a decrease from £9bn in 2019.
The researchers also reported a rise in scheme funding level from 81% in 2019 to 99% in 2024.
Moreover, the aggregate charity income was £15bn, which has increased from £12.6bn in 2019.
Indeed, the analysis shows that there has been a 20% rise in the average funding level of the DB schemes since 2019, driven predominately by falling pension scheme liabilities.
This is at a time when charity income is also now exceeding pre-Covid levels, Hymans Roberson’s report adds.
The 2024 report assesses the charities’ DB pensions exposures by looking at reserve levels, income, and DB pension contributions.
It shows that as a result of these increases, buy-out of the pension schemes is now closer than ever before for many charities.
Financial turnaround
Heather Allingham, actuary and head of pensions consulting for charities at Hymans Robertson said: “Charities have seen a significant turnaround in funding over the last five years, with a particular jump in funding level over the last year.
“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 buy-out 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 reassess their end-game plans for their schemes.”
She added: “Although we expect most charity schemes will be targeting buy-out, this rosier financial picture may prompt some charities to consider if run-on is a viable option for them, particularly those charities with larger schemes,” she said.
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