Are smaller charities heading for a fall over AE implementation?

Last week Pensions Week reported that a huge chunk of the charity sector risked enrolling their workers into suboptimal arrangements, as a result of capacity constraints, poor governance and general ill-preparedness.

The report from the Charity Finance Group, titled ‘Auto-enrolment for charities: a how-to guide’, showed 76 per cent of 210 respondents said they were “confident” or “very confident” in their capacity to implement auto-enrolment across their organisations.

However, the report cautioned: “Based on the feedback we’ve received from those charities that have already auto-enrolled, we would question whether some have underestimated the scale of the task at hand.”

The staging peak – or cliff – for the charity sector is late 2014 and 2015, when more than 25,000 of the UK’s 26,000-plus organisations will be required to auto-enrol their staff. But capacity concerns have already emerged across many sectors, with a number of employers having been turned away by their existing providers.

Martin Thompson, director at Premier Pensions, which helped compile the CFG report, says it is hard for providers to make a profit in cases where contributions are in line with the statutory minimum.

“Providers have not been good at bringing this to their clients’ attention and seem to be moving the goalposts all the time,” he says. “For example, many are now looking to charge for middleware, which was not previously the case.”

That providers have not been forthcoming on this could perhaps explain why more than half of charities auto-enrolling in 2015 and beyond assume they will be able to use their existing scheme on current terms, and only 7 per cent of all respondents plan to use Nest.

“However, many pension providers are wanting to change the terms for auto-enrolled employees and in some cases they will not accept them at all,” the report warned. “We would urge charities to check with their pension providers and to conduct the necessary due diligence.”

Costs and planning

CFG built on the survey findings to create a step-by-step guide on how to approach the entire auto-enrolment process, including choosing a provider, member communications and ongoing statutory responsibilities, which will resonate with employers beyond the charity sector.

Patrick Bloomfield, partner at consultancy Hymans Robertson, describes the guide as “excellent”. He adds: “Smaller charities will experience the sharp end of well-intentioned government policy, which the financial industry struggles to deliver at an economic price.”

He warns that charities offering decent schemes could end up “overpaying” if they enrol employees into their existing schemes. He says while cost will create one of the biggest obstacles for smaller charities, the issue can be overcome with careful planning.

“Some advisers are set up to help smaller charities with auto-enrolment at reasonable prices. It will pay to shop around and find someone who is familiar with your situation,” he says.

But the CFG report is not alone in demonstrating that the not-for-profit sector has a lot of work to do. The Pensions Trust, a multi-employer scheme for the not-for-profit sector, has held several seminars for employers and found that many set to stage next year are ill-prepared.

“Our suggestion has been to ensure auto-enrolment has not simply been passed to somebody in the HR or payroll team to ‘sort out’, but that it should have a plan with a decision-maker involved,” says the trust’s head of customer relations Logan Anderson.

He adds that employers should not expect their providers to comply on their behalf, but should instead contact them for assistance.

Robust review process

Investment and governance were two areas highlighted by the study where charities fell markedly short.

One in five review their investment strategies every two to three years, while nearly 50 per cent said they do not review their strategy at all.

As a result, more than half of small and medium-sized charities yet to auto-enrol currently have schemes with annual management charges greater than 0.5 per cent and subsequently, the report says, face enrolling members into “poor value” schemes.

Jane Tully, the CFG’s head of policy and public affairs, says: “We would urge charities to review these regularly, as they would their main portfolio of investments for the charity.”

In addition, half of respondents “appear to have no formal governance arrangements in place”.

Premier’s Thompson says good governance does not have to be overly burdensome for organisations. “A structured two-hour meeting once a year should be sufficient, providing all the issues are covered in a report issued before the meeting,” he says.

These governance findings are not surprising, says Stephen Nichols, chief executive of The Pensions Trust, as many employers across all sectors have historically taken a “set and forget” approach to their defined contribution schemes.

He said that so far, most employers have been focusing on the data and process issue rather than looking at the provider. But Nichols adds this would likely change as auto-enrolment beds in, because pensions will repeatedly come to the fore as a result of the mandatory triennial staging.

“Once you start getting into the process where there’s a focus for your organisation on pensions every three years, I think people are going to start coinciding that with a review of their pension provider,” he says, “because it will keep coming up on the management list of things to do.”