Charities with defined benefit (DB) pension schemes need to get prepared for the new funding regime and make sure they understand the changes it entails, according to LCP.

The consultancy noted that The Pensions Regulator’s (TPR) new DB funding regime applies to scheme valuations effective after 22 September 2024.

It called on any charities with DB schemes to be proactive in developing the future strategy for their scheme, especially as it believed a lack of action would lead to calls for higher pension contributions.

The new regime will see charities needing to work closely with scheme trustees to establish a formal funding and investment strategy.

Furthermore, the pension trustees are legally required to consider the employer’s covenant and have access to specific guidance on assessing a charity’s prospects.

LCP said that the new regime introduced new concepts that were not straightforward, adding that charities taking a proactive approach can help make sure trustees reach well-informed conclusions at the outset and reflect the charity’s objectives in their initial decisions.

To ensure they are ready for the changes, LCP urged charities to find out more about the likely impact of the regime on their DB scheme.

Additionally, charities were encouraged to take control of the areas where they have a role, with funding strategies usually needing to be agreed between charity and pension trustees so they can lead discussions and influence direction.

Finally, the consultancy called on charities to prepare for the additional information that pension trustees will request about the covenant.

“The regulator has done a good job in recognising that the business model of a charity is very different from a corporate, with helpful points made in its recently issued covenant guidance around where easements could be appropriate,” commented LCP partner, Jonathan Wolff.

“We did have some concerns about how the need for deficits to be paid off as quickly as ‘reasonably affordable’ would be interpreted when it came to charities.

“However, the guidance recognises that charities are fundamentally different from corporates and helpfully sets out where flexibilities can be considered.”

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