Pensions proposals 'offer huge opportunities' for charities

Recommendations for pension reform could reduce the financial burden for charities taking on public sector work, experts say

New report by Lord Hutton released
New report by Lord Hutton released

Two proposals for public sector pensions reform would offer charities "huge new opportunities" to win government contracts, according to pensions experts.

A report by Lord Hutton, chair of the Independent Public Service Pensions Commission, published yesterday, says new charity employees should not be enrolled in public pension schemes.

And the Treasury last week opened a consultation on the possibility of scrapping or reducing the Fair Deal, which requires charities to provide comparable pension schemes for public sector workers taken on as part of a contract.

This often means that charities must join public sector pension schemes to provide benefits for those workers, which can be very expensive and leave them open to unpredictable rises in future contributions.

Almost 2,000 charities have joined government pension schemes, and more than 10,000 charity employees are scheme members.

David Davison, head of public sector, charities and not-for-profit at the actuaries Spence & Partners, said many charities had been dissuaded from bidding for public sector contracts by the cost of public pensions and have lobbied to be allowed to offer cheaper, defined-contribution pensions to transferred workers.

"If charities aren't required to pay for hugely expensive pensions, it will make it much more affordable to bid for public sector contracts," he said. "If they don't have to take on these risks it will open up huge new opportunities for the sector to bid for contracts."

Ralph Michell, head of policy at the chief executives body Acevo, said the amendment of pension rules was "completely central to whether charities are able to deliver public services.

"Lobbying on this will be one of our top priorities in the coming months, and we think the sector needs to engage on this."

Sarah Smart, chair of the Pensions Trust, said that if charities were no longer able to be admitted to public sector schemes, but were still required to offer "comparable" pensions to those in the public sector, they would face difficulties. "We're not sure how that would work," she added.

Tony Barnard, account director at the pensions advisers Capita Hartshead, said the Hutton report was good news for charities with existing members in government schemes.

It recommends moving from schemes that pay workers according to their final salary to those based on a career average, meaning existing charity members of government schemes would be likely to have lower payments if the proposals were accepted by government.

"Already charities have seen smaller bills than expected this year because of changes in the way the government calculated pensions," Barnard said.

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