Successful preparation for pension dashboards could help charity defined benefit (DB) schemes reduce their operating costs, according to a new report.
Spence & Partners’ latest report on DB pension schemes sponsored by charities found that the average funding level was 100% on an accounting basis.
In addition, 44% of charities had stopped paying deficit recovery contributions, compared to 26% in Spence’s report last year, and many schemes have shrunk relative to their employer’s balance sheets.
However, average running costs for DB pension schemes increased by 11% year on year, which Spence said meant charities should “consider reviewing their pension scheme operating model”.
Alistair Russell-Smith, head of charity and not-for-profit at Spence & Partners, said trustee boards should consider using pensions dashboards as “a springboard to fully embed technology and automation into the administration of your DB scheme”.
“With the right systems, this can then flow through to the effective use of actuarial technology to comply with the new DB funding regime cost-effectively,” he continued.
“Some charities may even be able to access surpluses from their DB schemes with forthcoming regulatory changes.”
The 2025 Charity DB Pensions Benchmarking Report analysed the accounts of 50 large DB schemes run by charities in England and Wales. Between them, the schemes have £8.2bn in assets.
Dashboards, data, and dealing with costs
The average annual running cost of a charity DB pension scheme has reached £500,000, or 0.3% of liabilities, Spence reported – up by 11% since last year’s report.
Some of this cost was related to guaranteed minimum pension equalisation, but there were other areas – such as data and administration – that could be improved, according to Spence.
While most charities will not be required to connect to the pension dashboards ecosystem until 2026, Spence’s report urged trustees to prepare now for connection in order to benefit from technological efficiencies.
“There is a wide range of approaches and costs for dashboards connection being used in the pensions industry,” the report stated.
“Leaving an assessment of this work too long effectively forces schemes to use their existing administrator. Completing an assessment now leaves time to consider alternative approaches and administrators, and still connect to dashboards in 2026.”
Preparing and cleaning up data records could also help pension schemes get ready for an insurance transaction or reduce costs if they are considering running on, Spence said.
The consultancy group recommended measures such as reviewing service providers, considering bundled governance or investment offerings, and reducing the size of the trustee board in order to cut costs.
It claimed that charities could save an average of 30%, or £165,000 a year, with these changes.
Impact of market volatility
Russell-Smith said it was even more important to manage costs effectively following the recent turmoil in listed markets.
The MSCI World index dropped by more than 11% between 2 April and 8 April following the introduction of wide-ranging international trade tariffs by the US government. It has since rebounded after many tariffs were paused.
Charity DB pension schemes have an average of 27% of portfolios invested in “growth assets”, according to Spence, as well as “generally high” hedging levels.
Russell-Smith said meant “most schemes should be reasonably well insulated” from recent volatility in equities and gilts.
“However, these recent market movements are still likely to have reduced pension scheme funding levels and pushed out timescales until insurance buyout,” he said.
“If this means pension schemes will be on charity balance sheets for longer, it’s even more important to ensure the running costs are delivering value for money.”
Surplus access limited for charities
Spence & Partners’ report found that only 40% of charities with an accounting surplus in their pension scheme recognise this on the balance sheet.
This is usually due to restriction in the pension scheme’s rules as to how surplus assets can be used in the event of a wind-up.
Spence said charities need to assess the treatment of any surplus as part of their endgame planning.
Running on to create further surpluses could generate £500m in excess assets over the next decade, Spence claimed. This equated to approximately 13% of total assets of the schemes in surplus analysed by the report.
