# Taking bespoke funding route could help charities reduce pension costs, report finds

- Link: https://fundraising.co.uk/2021/06/18/taking-bespoke-funding-route-could-help-charities-reduce-pension-costs-report-finds/
- Published: 2021-06-18T09:47:14+01:00
- Author: Melanie May

**Charities could reduce their annual cash contribution to their DB pension schemes
by between 35 and 65% if they pledge security to their pension scheme and choose
a bespoke funding plan under the proposed new DB funding regime rather than adopting
the alternative fast track option, according to analysis by Hymans Robertson.  **

In its [annual report on DB pension funding in the charitable sector](https://www.hymans.co.uk/media/uploads/DB_CharityBenchmarking_2021_final.pdf),
the pensions and financial services consultancy found that charities could significantly
reduce their pension cash contributions by pledging security to support a lower 
funding target or longer recovery plan.  

The report also found that the proposed new TPR funding regime will see pension 
deficits for the largest 40 charities in England & Wales increase overall by a substantial
£1bn to £3.5bn, as schemes are required to put in place long term funding targets.

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Alistair Russell-Smith, Head of Corporate DB, H[ymans Robertson](https://www.hymans.co.uk/),
explained:

> “The new DB funding regime is coming into force in 2022/23 and charities have 
> big decisions to make as a result. The funding position of pension schemes in 
> the ‘not for profit’ sector is, on average, worse than other sectors in the UK
> and with the new regime these deficit figures are set to increase by an estimated
> £1bn for the largest 40 charities as their schemes put long term funding targets
> in place.  Charities are, therefore, more exposed to increased cash requirements
> under the new funding regime than other sectors.  
>  
> “For the first time, however, the proposed new funding regime gives charities 
> tangible value from providing security to their pension scheme because there is
> a direct link between the amount of security provided to the scheme and the subsequent
> reduction in cash contributions.  This means that pledging security to pension
> schemes may be a way for some charities to navigate the new funding regime whilst
> keeping cash contributions at current or even lower levels. 

He added:

>  “It has been a tough year for charities. Cash to fund the pension scheme is therefore
> scarce.  However, some charities do have significant balance sheets and unencumbered
> assets, which can be used to support the pension scheme and reduce cash costs.
> For example, a charge over charity property or investments can support a lower
> funding target or longer recovery plan which reduces the cash requirement down
> to more affordable levels.  Opting for a bespoke funding plan would allow charities
> to do this and we calculate it could enable them to reduce cash contributions 
> by 35-65%.  This approach allows investment returns to plug more of the funding
> gap as well as giving the pension scheme trustees the covenant visibility that
> they need under the new funding regime. 
>  
> “In contrast the alternative Fast Track route would increase cash costs for many
> charities.  While this route ensures no regulatory intervention, it comes with
> a real cash cost at a particularly unwelcome time for charities.” 

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