Care provider scheme overhaul nets 8% opt-out rate
The charity Alternative Futures Group has condensed its staff pension plans to two down from five in a bid to simplify its offering for auto-enrolment, achieving an 8 per cent opt-out rate in the process.
A report published last year by the Charity Finance Group found that more than half of small and medium-sized charities yet to auto-enrol were at risk of being left with poor-value auto-enrolment options for their staff, as pension providers reach capacity and cherry-pick the most profitable employers.
Sidestepping complexity
During the initial planning stages, AFG looked at the possible ways it could manage its payroll complexities itself, before turning to an outside technological solution.
“We thought we’d be fine with a spreadsheet… which of course wasn’t the case at all,” Howarth told delegates at the conference. “We looked at several different sorts of middleware.”
A large portion of the charity’s workforce falls under 'transfer of undertakings (protection of employment)' regulations, or Tupe. Under Tupe regulations, employees are transferred in and out of a company to temporarily work for other companies.
“Whenever a Tupe transfer came in we took on that pension for those employees, which is obviously a large number to administer,” said Howarth.
Payroll and benefits technology is increasingly important to employers auto-enrolling, as the complexity of the legislation can make the process difficult to manage.
“Without technology some of the legislation becomes very difficult to manage – the world isn’t getting any simpler,” said David Woodward, chief product and innovation officer at Ceridian.
AFG, which provides social care to people with learning disabilities and mental health needs, has a high turnover of low-paid employees due to contracts being won and lost.
“[The employees] weren’t attractive to a pension provider so that was certainly a consideration,” said Lorraine Howarth, payroll manager at AFG, speaking at a conference workshop hosted by payroll provider Ceridian last month.
Prior to auto-enrolment, AFG had 500 of around 2,500 employees enrolled in a pension arrangement, which spanned more than five providers.
When preparing for auto-enrolment it decided to reassess its entire pension strategy.
Despite working to simplify its pension offering, the charity ended up with two default pensions, Howarth said, with one part of the workforce having its qualifying earnings as the pensionable earnings, while another uses total earnings.
“We have created a monster,” she added.
The charity settled on Nest for its lowest-paid workers and Aegon for management, and introduced bandings to assess which scheme employees would be enrolled into, Howarth told Pensions Expert.
It chose Nest for the simplicity it offered its transient workforce and because it was the scheme of choice for similar organisations in the area. However, because of Nest's restrictions on transferring funds in and out, it decided to offer an additional scheme and chose Aegon due to its low management costs.
The Nest section has a 1 per cent employee/employer contribution rate, while those in the Aegon plan are matched on contributions of 3-5 per cent. The opt-out rate was around 8 per cent across all enrollees.
AFG operates around the north-west of England and as part of its pension review it assessed what similar organisations in the region were offering.
“It was important to us to be able to have some sense of continuity for our employees if they did have to go into another company – or likewise if they came into us that they would have some continuity in pension provision,” Howarth said.
Charities with a small workforce and high proportion of low-paid workers could find it difficult to attract good rates from providers.
“The issue they’ll have is finding a provider who is willing to take them on for a competitive charge,” said Alistair Russell-Smith, senior consultant at Hymans Robertson. “I suspect a lot of them will have to use Nest.”
Many presume they are able to use their existing provider to auto-enrol, but this may not be the case, said Russell-Smith.
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