The RSPCA, which has a deficit of £54m in its defined benefit pension scheme, has developed a hybrid system to pay down its debt, which includes paying a lump sum and selling surplus properties at good times in the market.

Speaking to civilsociety.co.uk, Michael Ward, director of resources at the RSPCA, said the charity recognised that it had a deficit of £22m in its defined benefit scheme four years ago.

It closed the scheme to new members and put together a recovery plan to remove the deficit over ten years at that stage. “However, in the period between that valuation and 2012, the liabilities rose,” he said. “We closed the scheme to new members which was part of halting the growing deficit, but in hindsight this was not enough and liabilities still grew.”

Ward blames the 2008 recession: “Nobody predicted how stark it would be. We thought we would bounce back in two or three years.”

The RSPCA has worked with the pension scheme trustees to develop a recovery plan to present to the pensions regulator, as paying a large lump sum to address the deficit would damage the balance sheet. “This is not what the reserves were designed for,” he said.

A compromise has been reached where the RSPCA will pay a lump sum of £10m, and every year for ten years make an additional overpayment of £1.5m. It also plans to dispose of some of its housing stock at appropriate times , and use some of the funds raised from this to pay down the deficit.

Ward says the hybrid solution will protect RSPCA’s ability to provide frontline services.

He adds it is committed to its pensioners. “The £10m lump sum is evidence of this,” he says. “It’s an eighth of our reserves – a significant amount.”

Ward also said the charity was looking at its investment strategy going forward. "We need to more closely align investment strategy and the Society's strategy," he said.

Ward, who came to the charity sector in 2008 from the construction industry, said the charity sector approaches its pension liabilities very differently from its commercial counterparts. “I joined RSPCA in 2008 from the construction sector – where we simply closed our pension scheme to future accruals in 2007. It is the case that some of our colleagues in the commercial sector are more hard-nosed, while the charity sector is more paternalistic and looks after its pensioners a bit more.”

Pension deficits are widespread in today’s financial climate across the charity, private and local government sectors. Pension deficits have led to charities closing and in February, the chief executives of CFG, NCVO and Navca expressed their "grave concern about the detrimental impact of escalating pension liabilities on charities" in a joint open letter to Steve Webb, minister for pensions.

Like RSCPA, lots of charities are developing imaginative solutions to eliminate their deficit, like the Royal British Legion which has offered a pension increase exchange to its retired former employees already drawing a defined-benefit pension, in a bid to reduce the deficit in its pension scheme.

But an RSPCA spokeswoman warned that pension deficits may have serious implications for the whole of the charity sector. “While the provision of a pension can help with staff recruitment, retention and morale, having a pension fund deficit may deter donors who fear their donations could be used to plug a gap in the pension fund rather than going directly to charitable work.”

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