Part one of a Pensions Insight investigation into the pensions challenges faced by charities, looks at the scale of the problem


“Excuse me sir, can you spare five minutes?”

The moment thousands of people dread. It’s a modern phenomenon that means you can’t walk a hundred yards in a town centre anywhere in the country without being accosted by enthusiastic young fundraisers.

‘Chuggers’ use a variety of tactics to engage you in conversation with the hope of securing a payment of just £1 a month. They see straight through fake mobile phone conversations and will go to extraordinary lengths to make eye contact.

One topic they will never raise, when begging you to part with a portion of your pay packet, is their charity’s staff pension scheme.

Take for example, the situation Age UK, Action for Children and the RSPCA find themselves in. Combined, they paid £25m in deficit recovery contributions in 2013, equal to 15% of all the donations they received (see below for more).

Just like their counterparts in the corporate and public sectors, charities have offered their staff generous defined benefit pensions but have run into problems in recent years as funding deficits have ballooned.

The difference is that while corporations have to explain to shareholders why cash must be set aside for pensions, charities are in the increasingly delicate situation of having to justify using resources – including the public’s donations – to keep their schemes afloat.

Coughing up

Age UK

Total donations: £36.4m

Pension scheme deficit: £19.1m (FRS17)

Deficit recovery contributions: £5.3m


Action for children

Total donations: £18m

Pension scheme deficit: £48m (FRS17) 

Deficit recovery contributions: £7.5m per year until 2029/30



Total donations: £105.41m

Pension scheme deficit: £55.2m (FRS17) 

Deficit recovery contributions: £10m one off payment, plus: £1.5m per year for the next 10 years

*All figures for 2013

But charities’ problems don’t end there. Many charities have opted to join multi-employer schemes, to avoid the burden of running a standalone scheme themselves, and this has raised issues all of its own.

At the same time, charities are finding their ability to compete for lucrative public sector contracts – such as running children’s homes in place of councils – hampered by the burden of unknown pensions risk.

Perk of the job

Steve Delo is chief executive of professional trustee firm PAN Governance. He is also chairman of trustees at the NSPCC’s pension scheme, which managed to secure a £63m buy-in last year. But he says some charities are facing “some pretty horrible figures” and that they are “increasingly nervous about bad press – donations going into pension deficits”.

However, charities have had good reasons to offer generous pensions. Staff often put up with lower pay than the private sector on the understanding they’ll have a good income in retirement.

Philip Goodchild, a partner in law firm Stephenson Harwood, is a member of a forum for charities set up to discuss their shared pension challenges. He says charities diverting money to pensions is “the elephant in the room.

Charities want to be able to say that 95p in every pound goes to charitable needs

“Charities want to be able to say that 95p in every pound goes to charitable needs, but that can get difficult if you have to set aside money for the pension scheme.”

Some charities have already paid the ultimate price for promising staff too much. Homeless charity People Can went into administration in 2012 after being swamped by a £17m pension scheme funding deficit when its income barely passed £10m a year.

This May the Charity Commission published a report into charities with pension deficits. After analysing the accounts of a random sample of 97 charities, it found the aggregate deficit was equal to 16% of the charities’ combined annual income.

Charities’ reluctance to close DB schemes is an obvious problem and this is exacerbated by the incredible divide between charities or different size. According to the latest Charity Commission figures, there are nearly 70,000 charities with less than £10,000 in annual income. Compare this to the just 2,000 organisations taking in more than £5m a year.

Those thousands of small charities more often than not lack the expertise and time to deal with their legacy pension problems.

In the next part of this investigation Pensions Insight explores how charities in multi-employer schemes feel trapped, and the obstacles stopping them from bidding for potentially lucrative public sector work.