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Law360, London (June 9, 2020, 3:16 PM BST ) Three-quarters of the U.K.'s largest charities have pension deficits and should take advantage of opportunities presented by the regulator to suspend contributions for three months, a pensions consultant said in a report Tuesday.
London-based Hymans Robertson looked at the 40 largest charities and found 75% have a deficit in their defined benefit schemes. The average deficit was 19% of net unrestricted income, with one charity reporting a deficit that exceeded their unrestricted income.
Charities that derive a significant portion of earnings from high street outlets have been hit hard by the nationwide lockdown, which began in late March.
"The COVID-19 pandemic has placed many charities under significant financial strain with fundraising and retail income particularly badly hit and with a need to conserve cash," said Alistair Russell Smith, head of corporate defined benefit schemes at Hymans Robertson. "In many cases there is additional concern as [defined benefit] pension deficits have also increased."
The consultant said charities that were reeling from the COVID-19 crisis should suspend pensions contributions for three months to save cash, an option permitted by The Pensions Regulator.
"However, this isn't a free lunch, and longer-term sustainable funding plans are needed for their DB schemes," Smith added.
TPR is in consultation with the industry over changes to its DB funding code, the route by which schemes gain regulatory signoff for their funding arrangements.
The new proposed twin-track approach to approval would see larger schemes that could provide required information on investments and risks upfront put through a speedier approach to the regulatory green light for their funding arrangements.
Funds that do not have the information on hand would likely have to go the bespoke route to approval, which TPR said would involve "more regulatory scrutiny."
Smith said that most charities would have to take the bespoke route, meaning more red tape.
"The fast-track option ensures no regulatory intervention if minimum standards are met but could mean too big an increase in deficit contributions for some charities," he added.
--Editing by Rebecca Flanagan.
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