Charities failing to properly report impact of DB pension deficits

More than half (58 per cent) of charities with pension deficits failed to explain the effect this could have on their financial position in their trustees’ annual report, according to research from the Charity Commission.

The research, which was detailed in a blog post by the commission, also noted that just 26 per cent of the charities included the pension deficit as a risk in the report and only 28 per cent were judged to have clearly explained how they were handling their pension deficit.

Explaining the importance of the problem, the commission pointed out that the number of charities reporting a pension scheme deficit rose from 740 in 2012 to 1,219 in 2018.

The research stems from the commission’s decision to review the financial accounts of 89 randomly selected charities and 11 charities identified through proactive work, each of which reported a pensions deficit, with the charities having a combined pensions deficit of £557.4m.

The commission then carried out a more detailed review of 40 of these charities, asking them about their defined benefit pension scheme deficit and quizzing trustees about matters such as seeking specialist advice and reviewing charities’ ability to keep delivering on their objectives.

The blog post stated: “The good news is that most were found to be handling this risk appropriately. The bad news is that, even where the risk was being well managed, we found most charities did not report the matter in enough detail in their annual accounts and trustees’ annual report, as required or recommended by the charities’ Statement of Recommended Practice.”

Of the 40 charities that the commission looked at in more detail, it provided regulatory advice on the accounting issues that needed to be addressed, and nine of the charities are now subject to follow-up monitoring.

The Charity Commission noted: “We know that many charities are currently facing a huge financial strain whilst also playing a crucial role in the coronavirus response.

“Whilst mindful that reporting can feel like a burden, especially at times like these, it remains really important that charities not only ensure they are taking an active approach to managing significant financial risks like pension deficits, but also that this is reflected and explained transparently in their accounts.”

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