UK charities are in a "strong" position to consider and target their endgame, Hymans Robertson has said, after its analysis revealed a 5 per cent increase in the average funding level of charities' defined benefit (DB) pension schemes since 2024.

The firm's annual report on DB pension funding in the charitable sector showed that the combined reserves of the largest 40 charities in England & Wales that sponsor DB pension schemes now sit at £49bn.

These improvements are part of a wider trend, as Hymans Robertson pointed out that funding levels have increased by 25 per cent since 2019, driven predominantly by falling pension scheme liabilities.

And despite volatile markets and growing global uncertainty, these funding improvements mean that many charities’ DB schemes are now closer than ever to buyout, as the analysis showed that overall funding for many schemes is now, on average, over 100 per cent.

Whilst charity income from fundraising and charitable activities has dipped slightly to just below £10bn, Hymans Robertson pointed out that restricted charity income is now approaching £5bn, maintaining total charity income at £15bn.

However, Hymans Robertson clarified that while "all of this is good news", it also brings new challenges around how schemes best approach their endgame strategy, suggesting that alternative endgames to insurance may be becoming more viable for charity schemes with run-on and consolidators becoming more mainstream.

"Charities should now be in a strong position to consider and target their endgame, whether that be insurance, run-on or a consolidator option," Hymans Robertson partner and head of pensions consulting, Heather Allingham, said.

"The pending Pension Schemes Bill is likely to make extraction of surplus more viable for some, making run-on more attractive. Changes here could allow schemes to generate funds for both the members of the scheme and to support their wider charitable activities."

In addition to this, Allingham said that consolidating into superfunds is becoming a viable option for smaller schemes, largely because it provides security for their members’ benefits at lower cost.

"In addition, the most recent Clara transaction with the Church Mission Society made use of a connected covenant structure," she continued.

"This transaction should prompt charities to consider whether Clara could provide them with a viable endgame for their DB scheme, with enhanced security for members and allowing the charity to refocus their hard-earned income back to their charitable purpose.

“Finally, charities and their pension scheme trustees should be ready for the new funding code with a particular focus on the appropriate level of risk in their asset strategies and consideration of how to best measure the covenant strength of the charity.”

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