Tackling risk of pension scheme deficit

The Charity Commission is reminding charities that they should use their Trustees' Annual Report to explain how they are tackling the potentially serious risk of a pension scheme deficit.

The message follows a review conducted by the regulator of the accounts of charities whose pension schemes are in deficit. The Commission identified 740 charities with an income of over £500,000 whose accounts showed a deficit and randomly selected 97 of these for a more detailed review.

The review is part of the Commission's programme of thematic reviews of charities' accounts, aimed at checking charities' compliance with the Charities Statement of Recommended Practice, identifying risks facing charities and identifying regulatory concerns in individual charities.

The review found that only 31 of the 97 Trustees’ Annual Reports included an explanation of the financial implications of the charity's pension scheme deficit and of the trustees' plans for tackling the issue.  

The Commission says it recognises that some trustees whose charity's pension scheme deficit is relatively small may have decided the financial risk was minimal and did not merit inclusion in the Trustee Annual Report.

Other key findings from the include that:

  • The 97 charities selected report a total pension scheme deficit of over £617 million, over half of which was contained within three charities;
  • 60 of the 97 were members of multi-employer schemes, most commonly those provided by local authorities;
  • Seven charities had deficits that amount to more than their unrestricted funds and over 20 percent of their annual income; and
  • The audit reports of two of the seven charities with large deficits included an emphasis of matter regarding the charities' ability to continue as going concerns.