Blog

Pensions and HR

15 June 2012, 11:59

Easing the pension burden on charities, just slightly...

Having gone through one or more tough pension valuations in the last few years, many charities have put their schemes on a financially stronger footing by reducing benefits, higher contributions, ...

Post byGuest blogger

Having gone through one or more tough pension valuations in the last few years, many charities have put their schemes on a financially stronger footing by reducing benefits, higher contributions, long term recovery plans and the pledging of assets. Those facing a valuation in the last 12 months or in the near future could be forgiven for being disheartened for the deficit stubbornly refusing to reduce. The primary cause is nothing to do with investments as most asset classes have delivered some impressive performance over the last few years. Instead it is the valuation of the liabilities, which are based on the yields payable on government gilts, historically used to derive the risk free value of pension liabilities. Yields have fallen dramatically over the last year leaving many pension schemes on the critical list. The much anticipated statement from the Pension Regulator was hoped to be the medicine that many schemes needed. The statement acknowledges the issues faced by employers, even if many will feel it understates the full extent of the challenges faced by pension scheme sponsors: the deterioration in gilt yields is the primary driver and far outweighs any improvements in factors such as asset allocation or applying CPI instead of RPI. The Regulator recognises paying more cash into the scheme is not always the answer and so is implicitly accepting that recovery periods may lengthen for valuations in the current environment. Those charities whose covenant is strong enough to support a long recovery period will take some reassurance from this. A strong covenant and support of the pension trustees are the minimum expected prerequisites to a long recovery period. The traditional view has been that gilt yields will recover, but will they and if so by how much and when? The Regulator is clear that smoothing of gilt yields is not an option nor are using yields at an earlier date than the valuation date. Post valuation experience is acceptable, so cross your fingers and watch the movement in gilt yields for any signs of improvement. Describing ‘gilt yield reversion in the recovery plan assumptions’ as ‘by exception’ the Regulator does not rule out this option in recovery plans as long as contingency plans are in place should yields not recover as expected. Pushing at this small opening is something to be discussed with pension trustees and in time with the Regulator. The issues facing charities are more acute than most: refinancing is not an option and there are no dividends to be redirected towards pension contributions, indeed reduced dividends are likely to reduce income for charities making the situation worse. Every pound paid to the pension scheme is a pound that is not going towards the charitable purpose and away from where the donor thinks his or her money is being spent. Schemes may not be feeling any better but at least could be a little more comfortable as they make a long and painful recovery. Add in auto-enrolment creeping up on the horizon and it is clear that pensions will continue to dominate the role of charity finance professionals, even those who previously have been relieved not to have a defined benefit pension scheme.

Kevin Barnes is a CFG trustee and director of finance at Barnardo's. Â« Back to all blog posts

Blog

Easing the pension burden on charities, just slightly...

Related Content

Attracting talent and creating a strong employer brand in large charities

CFG Briefing: Budget 2021

Finance Focus October 2020

Finance Focus September

How to avoid bias in job advert writing

Recruiting trustees from Black and Asian network organisations - it really isn’t rocket science!

Updated Coronavirus Job Retention Scheme Guidance

Coronavirus Job Retention Scheme update

Are you looking after yourself during the crisis?

Finance Focus Feb 2020

It's time to banish the 'flexibility stigma'

Post-Brexit immigration rules could cause skills shortage in charities

The charity work force in post-Brexit Britain

Concerned about new charity staff disqualification rules? Help is at hand!

CFG welcomes new regulations on multi-employer pension schemes

Navigating the Charity Pension Maze

Caron Bradshaw - Charity Finance Group Annual Fundraising Dinner Speech 2017

Time to review your risks? An update from the experts...

6 simple steps your charity can take to help protect themselves from fundraising fraud

CFG Chair Speech to Annual Conference 2017

A step closer to reforming Section 75

Better partnerships needed between finance and fundraising teams

Government warned against raiding charities to fund private sector apprenticeships

Navigating the Charity Pensions Maze

Navigating the charity pensions maze

Auto-enrolment update from The Pensions Regulator

Five things to look forward to in 2017

Small charities and auto-enrolment: do you have everything in place?

Government must get on with pensions reform

Apprenticeship levy update - October 2016

Small charities and auto-enrolment: choosing a pension scheme

Tony Armstrong looks at Devolution: working with local organisations to transform public services

Devolution is our chance to advocate for the most vulnerable

How will the 'devolution revolution' be financed?

Caron asks: 'Why does the voluntary sector need a devolution summit?'

CFG responds to LGPS consultation

CFG leads the call to delay Apprenticeship Levy

Do charities need to become social enterprises to survive?

EU Referendum: What could this mean for charities?

Is the SORP FRS 102 working for you?

Apprenticeships Levy Update - Guidance for Charity Employers

Apprenticeship Levy update: what charities need to know

Update on the Apprenticeship Levy

What do we do with a problem like LGPS?

What’s the latest data on charity sector income and expenditure?

Section 75 debt reform - an opportunity we cannot afford to miss

Capacity building – a dividing line in 2015?

Looking back on 2014

Tackling the looming pensions crisis

Transparency: Finding the right balance

Vision for sector post-2015. What did the politicians have to say at the CFG Annual Conferece?

Making CFG fit for the future

Managing in a Downturn Report Reflections....

Accounting disclosures under multi-employer pension schemes

Accounting at the sharp end: A report from the Community Accountancy Conference 2014

Pension Auto Enrolment Checklist

Charities: growth or sustainability - why it matters for their pensions

Pension charges: Is transparency enough?

How are charities faring with auto-enrolment

We're all in! Are you?

Auto-enrolment for Small Charities

Big Board Talk

Why recruitment from the private sector may be increasing in charity finance teams

The charity finance professional in 2013: insights from CFG’s latest People and Pay Survey

Transforming financial leadership - improving through improvisation

A pensions palaver

Pension Policy