Actuaries warn of unaffordable compulsory pensions bill

Problems predicted for charities enrolled in multi-employer defined schemes

David Davison
David Davison

Charities in multi-employer defined benefit pension schemes are unlikely to be able to afford the expected compulsory enrolment of their employees in pension schemes, according to actuaries.

They said they were expecting a government decision by the end of October on whether the National Employment Savings Trust scheme, part of the Pensions Act 2008 and scheduled to start in 2012, would proceed.

The scheme requires employers to enrol all employees in a pension plan, either under the Nest scheme - a basic defined contributions pension scheme - or through the employer's own plan, as long as it provides at least an equivalent level of benefits.

David Davison, a pensions consultant at Spence and Partners, said compulsory enrolment posed a particular problem for charities with staff in multi-employer defined benefit pension schemes.

He said these charities faced a potentially large increase in the number of staff in the pension scheme, they had little control over their own level of contributions and the benefits that these pension schemes offered were expensive to fund.

Typically, only a quarter of employees of charities using multi-employer defined benefit schemes were likely to be in the schemes already.

He said in a typical scenario, these charities' pension costs could rise by 50 per cent, and in the worse case scenario could triple costs. "Most charities in these schemes simply couldn't afford it," he said.

Several thousand charities are believed to be enrolled in such multi-employer schemes, including the Local Government Pension Scheme and those run by the Pensions Trust.

Ian Bird, a senior partner at financial advisers Foster Denovo, said charities with members in multi-employer schemes could often not afford to leave because most owed large amounts of money to their pension schemes, which they would have to pay back in a lump sum if they left.

"Most employers in these schemes are only in them because the cost of leaving is prohibitive," he said. "Anyone in one of these schemes will have to look at how they manage the increase in cost that Nest will bring."

He said the Nest legislation itself could be delayed or even abandoned by the government, but some form of compulsory enrolment scheme remained likely.

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