Many charities risk underestimating the time and work required for complying with new government rules on workplace pensions, according to sector experts.
Under the government’s auto-enrolment scheme, employers must automatically enroll workers who earn more than £9,440 into a pension, although individuals can then choose to opt out.
It is an attempt by the government to encourage more employees to save for their retirement. The scheme is being implemented gradually, with larger employers going first.
In a phased process, from 2015 onwards 83 per cent of charities, mostly smaller employers, will have to have auto-enrolment in place.
Jane Tully, head of policy and public affairs at the Charity Finance Group, says she is concerned that many smaller charities have underestimated how much planning is needed.
She is also worried that there might not be enough suppliers in the market to meet the needs of smaller charities, who might also lack the in-house skills to put auto-enrolment into practice.
Last November, the CFG published a report, Auto-enrolment for Charities: a how-to guide. This included tips on implementing auto-enrolment as well as the results of research on the experience for charities. To download this report, click here.
"Our research found that charities need between nine and 12 months to prepare for auto-enrolment," says Tully
Ian Bird, a partner at the consultancy Foster Denovo, says many charities do not realise how complex auto-enrolment is. Some charities that have workplace pensions in place might assume that their providers would continue to offer them pensions under the same terms with auto-enrolment, but this is not necessarily the case, he says.
Almost 70 per cent of charities told the CFG that they were planning to use their existing pension providers for auto-enrolment, but many providers want to change the terms of their pensions under the new scheme. Some providers are not willing to offer auto-enrolment at all.
Some payroll providers might not be able to provide the technical support needed to move to auto-enrolment, says Bird. "I would urge smaller charities to start making plans as soon as possible on how they will comply with auto-enrolment, because the longer they leave it, the greater the risk that they will be left high and dry," he says.
Another issue facing charities that auto-enrol is that costs are likely to rise if, as expected, auto-enrolment brings more employees into pension schemes. Opt-out rates are expected to be relatively high, says Tully, but recent data from the Department for Work and Pensions suggest opt-out rates are running at a lower-than-expected 9 per cent.
Because employers are contributing to pensions, more enrolments means higher costs for the employer. Charities should be aware that these costs will affect their future budgets, says Tully.
But as well as the challenges for charities, there are also opportunities, says Victim Support HR director Joe Healy (see case study, below). He says going through the auto-enrolment process was a great opportunity to communicate the benefits of pensions to staff.
Usually employees do not understand a lot about pensions and put the issue to the back of their minds, says Healy: "We used this opportunity to really engage with our staff and explain the importance of pensions as a benefit rather than them seeing it as just an admin thing."
He says that in the voluntary sector, where salaries are often not as high as in other sectors, pensions can be a good way of attracting and holding on to staff. "For that reason, auto-enrolment can be seen as a positive thing by charities, even though there might be challenges in implementing it."
Case Study: Victim Support
Victim Support has used auto-enrolment to simplify its pension administration and increased sharply the percentage of staff enrolled in the scheme.
The complication at Victim Support was that it merged its 77 member charities in 2008, so there were multiple pension schemes to bring together in auto-enrolment.
With the help of the consultancy Foster Denovo, the charity consolidated these smaller pensions into one scheme. It also promised that no one would be worse off as a result.
Because of the complications, the planning period was 18 months. The project included working with the charity’s payroll provider to integrate databases and choosing a single pension provider.
Carolyn Stanhope, head of HR services at Victim Support, says: "We needed to know all the data about the old pension schemes, such as what charges people were paying and so on, so that we could show the workforce we knew what we were doing and that they would not be worse off."
Communication with staff was the key to success, says Joe Healy, the charity’s HR director. "We communicated that pensions are basically long-term savings plans to which the individual and the employer contribute, so if you’re not in it you’re losing out on some free money," he says. Victim Support will contribute 5 per cent and employees 3 per cent.
The charity communicated the changes through a variety of means, including individual letters, brochures, FAQs, group meetings and web seminars.
A particular concern was employees in their fifties who were nearing retirement. The charity ensured that those over 55 had access to independent financial advice to make sure they wouldn’t be worse off.
As a result of the changes and the communications campaign, the proportion of employees enrolled in the workplace pension increased from 65 per cent to 98% per cent.