Top login menu

Murray Edwards College
University of Cambridge

Reserves Policy

Main page content

Reserves Policy

Current Version Adopted by Council: November 2016

Review Date: 2021

Committee Ownership: Finance Committee

Background

The College’s reserves policy hitherto has been a short statement in the accounts, as follows:

"The College intends to continue to pursue its objects in perpetuity, which requires investment income from corporate capital, endowments, reserves and unrestricted funds. It takes a long-term view of its investments and aims to maintain an equitable balance between the interests of the present members of the College and future generations. The real value of permanent endowment and corporate capital will be protected over the long-term and unrestricted funds and reserves will be built up as much as possible. In addition the College needs to build up its reserves to permit the repayment of debt which stands at £13.5m."

Early in the 2016 audit, Critchleys identified that the College’s initial draft reserves policy statement in its accounts, based on prior years’ drafting, was brief and merited development. This has been done as outlined in this note.

Charity Commission requirements

The Charity Commission’s advice is:

- A charity should keep money aside as a reserve to protect the charity against drops in income or allow it to take advantage of new opportunities. The charity’s reserves can be spent on any of its aims; and

- The charity should write a reserves policy to explain to others why it is setting money aside reserves rather than spending it on the charity’s aims.

With that in mind the Finance Committee has revisited the policy and recommends a revised policy as show below, which is reflected in the current draft of the accounts. It has been built on the following questions the Charity Commission poses in its publication CC19:

- How much are the charity’s reserves?

- When can reserves be spent and how much?

- How often the policy should be reviewed?

In the annual report the college is then required to state:

- Why funds are reserved instead of spending it on your charity’s aims

- How much is held in reserve

- Why it is held in reserve

- What the reserves can be spent on.

Proposed policy

Having had regard to the above the following policy is proposed:

"The College intends to continue to pursue its objects in perpetuity. Its activities require income support from its investments which include corporate capital, endowments, restricted and unrestricted reserves and funds. Unrestricted reserves can only be considered free reserves to the extent that they exceed the college’s tangible assets which are integral to its operations to deliver its charitable objectives. A substantial level of such reserves is necessary:

1. to permit the repayment of debt which stands at £13.5m which begins to fall due for repayment in 2025; and

2. although the college’s other income streams are reasonably stable in the short term, to provide support in the event of an unforeseen downturn in the college’s investment income arising from wider economic uncertainty of financial market shocks.

In addition the College’s reserves provide investment income to support its operations.

The policy and compliance with it will be reviewed annually and particularly in the event of material change, upwards or downwards, in the level of free reserves."

Applying that policy the following narrative is included in the accounts, marked up to show the differences from the narrative used hitherto:

"The College intends to continue to pursue its objects in perpetuity. Its activities require income support from its investments which include corporate capital, endowments, restricted and unrestricted reserves and funds. The college’s unrestricted reserves are £52.7m but the free reserves are only £2.2m, after considering the college’s tangible assets of £50.5m which are integral to its operations to deliver its charitable objectives. Such a level of free reserves is necessary to help to provide investment income to support the activities, as mentioned. In addition, although the college’s other income streams are reasonably stable in the short term, the free reserves provide support in the event of an unforeseen downturn in the college’s investment income arising from wider economic uncertainty. The college views the reserves as a minimum level which should be increased over time both to yield further investment income to support the charitable objects of the college and to permit the repayment of debt which stands at £13.5m and part of which falls due for repayment in 2025."