​Final salary schemes prove to be an albatross around top 50 charities' neck

Data gathered from a survey of the largest 50 charities in the UK shows their pensions schemes’ combined deficit rose by over a third in the last two years.

The worrying statistic is contained in a bi-annual pensions report by Charity Finance magazine and financial firm BDO.

Defined benefit schemes are becoming more problematic for charities as they pay a fixed amount at retirement - usually a portion of an employee's final salary.

These pensions are mostly in deficit because historically employers underestimated life expectancy and were too optimistic about stock markets.

The trend in the charity sector has been to close final-salary, defined benefit schemes

Although most charities have ended these pensions, they still are falling into deficit because they are finding it increasingly difficult even to maintain the cost of running them.

The top charities spend around £1 in every forty they receive meeting obligations and making up deficits.

The largest increase reported by an individual charity is at the Wellcome Trust, with its deficit nearly doubling to £218m.

The National Trust’s deficit was up £39.0m to £154.0m while Barnardo’s saw its deficit up £21.2m to £109.0m, and RSPB’s deficit was up £18.7m to £86.5m.

Charities which have seen their deficits reduce include Cancer Research UK, the British Red Cross and RNIB.

Anjelica Finnegan, senior policy and public affairs officer at the Charity Finance Group, said: “Like all other parts of the economy, charities are faced with falls in equities and bond yields and rising life expectancy. The trend in the charity sector has been to close final-salary, defined benefit schemes.”