Funding levels remain strong among charity pension schemes and attention should turn to endgame planning, according to the 2025 Charity DB Pensions Benchmarking Report from Spence & Partners, one of the leading providers of pensions advisory and data services to pensions schemes in the UK.
The report reveals that funding levels across Defined Benefit (DB) pension schemes in the charity sector have reached an average of 100% on an FRS102 basis. The report is based on an analysis of the accounts of 50 large DB schemes run by charities in England and Wales, covering £8.2bn in scheme assets, and spanning year ends from 30 April 2023 to 31 July 2024.
The findings show a significant increase in the proportion of charities ceasing deficit contributions, with 44% of charities no longer making deficit recovery contributions—up from 26% in the previous year. For those still contributing, average payments are 1.5% of unrestricted income.
The report also highlights that yield rises since last year and good asset returns on charity investments mean pension schemes have shrunk relative to charity balance sheets. On a Low Dependency Funding Basis, deficits now average just 10% of unrestricted reserves.
However, only 40% of charities with an accounting surplus are recognising it on their balance sheets due to scheme rule restrictions. This suggests some charities cannot easily access a DB surplus, which needs assessing as part of endgame planning. Recent Government initiatives to make DB surplus more accessible for employers may help. As an example, if all schemes in this analysis ran on for the next 10 years, Spence estimates this would generate excess assets above insurance buy-out of £500m, which averages 13% of current DB assets for the schemes in this position.
Spence’s research also found that the average scheme running costs have increased by 11% from last year. Average annual running costs have now risen to £500,000—equivalent to 0.3% of liabilities. The report recommends charities assess their data quality, administration systems and provider value now with Pensions Dashboard staging dates fast approaching. Spence & Partners estimates that charities could potentially cut pension scheme running costs by as much as 30% - an average saving of £165,000 per annum - through automation, updated governance structures and competitive provider reviews.
Alistair Russell-Smith, Head of Charity and Not-For-Profit at Spence & Partners, said: “With deficit contributions turning off in many cases, there is now an opportunity for charities and their pension scheme trustees to review their DB pension arrangements to ensure the running costs are delivering value for money. Consider using Pensions Dashboards as a springboard to fully embed technology and automation into the administration of your DB scheme. With the right systems, this can then flow through to the effective use of actuarial technology to comply with the new DB funding regime cost-effectively. Some charities may even be able to access surpluses from their DB schemes with forthcoming regulatory changes.
“In terms of the current global market volatility, our analysis shows the average allocation to ‘growth’ type assets like equities across charity schemes is 27%. This is a far lower allocation to equities than pension schemes typically had at the time of other previous equity market falls. Hedging levels are also now generally fairly high, meaning most schemes should be reasonably well insulated from the recent gilt yield volatility. However, these recent market movements are still likely to have reduced pension scheme funding levels and pushed out timescales until insurance buy-out. If this means pension schemes will be on charity balance sheets for longer, it’s even more important to ensure the running costs are delivering value for money.”
The full Spence Charity DB Pension Report 2025 is available on request here:
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