Around £400m could potentially be returned to charities from well-funded defined benefit (DB) schemes and used for charitable aims, research from First Actuarial has revealed, although there is a "worrying gap" between the haves and have-nots.

First Actuarial's latest charity survey warned that the widespread narrative of post-2022 funding level improvements is masking "serious problems", as only 25 per cent of DB schemes sponsored by charities have a surplus on a buy-out basis, compared to more than 50 per cent across the whole DB landscape.

There was also a wide gap between large and small charities, prompting concerns that many smaller schemes may struggle to run on and meet ongoing expenses.

Indeed, the analysis suggested that three in five of charities' DB schemes will not be able to generate sufficient asset returns to meet ongoing scheme running expenses.

In addition to this, it found that 88 per cent of charities with a DB scheme in deficit have insufficient reserves to de-risk their schemes now, while around seven in 10 DB schemes in the charitable sector have less than £50m in assets.

“Our survey, which is representative of the charitable sector as a whole, reveals a troubling picture of haves and have-nots," First Actuarial scheme actuary, Emily Brown, said.

"Smaller charities face lower pension scheme funding levels and disproportionately high running costs.

"The survey highlights the need for schemes in the charitable sector to choose whether to run on in a cost-effective way, or actively consider buyout with an insurer.”

Emphasising the importance of cutting scheme costs, the report revealed that around 3p in every £1 of charitable expenditure is spent on pensions

These costs are primarily being used to support defined contribution (DC) arrangements. First Actuarial found that charities are spending around twice as much on DC arrangements as on DB schemes, seeing the latter as a legacy issue in a transformed pensions landscape.

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