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Charity Commission highlights risk of pension scheme deficits

Author: Kristina Kopic, Head of Charity and Voluntary Sector, ICAEW

Published: 02 Feb 2021

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Nigel Davies, Assistant Director for Accountancy Services at the Charity Commission, recently published a blog post that warned of increasing pension scheme deficits in charities and highlighted the associated risks and responsibilities of trustees.

The Commission undertook some research into charities with pension scheme deficits after it saw an increase of 65% in the number of charities that reported a pension deficit between 2012 and 2018. This research consisted of reviewing the financial accounts of 100 charities that reported pension scheme deficits, mostly selected at random. This was followed up with interviews of 40 of these organisations to find out whether trustees were handling the risks appropriately and reported the matter in enough detail in their annual accounts and trustees’ annual report.

Davies concluded that trustees were better at managing the risk than at reporting it:

“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 (SORP).”

Davies reminds charity auditors of their role in drawing attention to any financial risk arising from a material pension liability within their audit report.

Find out more about the Commission’s findings and recommendations here.