Small Charities and Pensions

What is a pension?

A pension is a form of savings and investment, designed to provide income in later life.  

The Pensions Act 2008 set up a system called auto-enrolment. This means every employer in the UK must include certain members of staff in a workplace pension scheme and make contributions to the fund.  Pension funds are not part of the charity’s assets. The funds are held as investments by the scheme until the scheme recipients reach their chosen retirement age. 


Prior to the start of auto-enrolment, many charities made contributions into a pension fund as part of their benefits package for members of staff. These funds may include stakeholder pensions, private pensions and more. The structure of the fund could be one of two types of pension: a defined benefit pension pays out based on the member of staff’s salary (either final salary or some form of average) whereas a defined contribution pension pays out based on the amount paid in to the fund and the growth the fund has made. In some cases, defined benefit pension funds may have a deficit which creates liabilities for the charity.   


Some charities which have evolved from or are associated with local authorities are admission bodies which have chosen to participate in the Local Government Pension Scheme (LGPS). The LGPS is a defined benefit scheme. 


The state pension is paid by the government to qualifying people, once they reach state pension age. The amount of state pension that people receive varies depending on their employment history, record of national insurance contributions and credits. This guide does not cover information about state pensions. 


Why pensions matter 


If you currently have, or plan to have, members of staff then you will need to look at your duties to offer a workplace pension scheme and operate auto-enrolment. You will also want to consider possible rates of employer’s contribution that you provide as part of your benefits package to staff. 


If you no longer have members of staff, but have done so in the past, you should check your charity’s position in relation to any past pension fund. This is particularly important if you have offered a defined benefit (DB) scheme in the past. You should look at whether your DB scheme is in deficit and the extent to which your charity is potentially liable for some or all of the deficit. If you are still operating a DB pension scheme, check whether this is closed to new applicants (almost all are) or if you are continuing to include new members of staff. DB schemes, and potential deficits, are complex and we recommend you take specialist advice. 


If your charity is an admission body participating in the Local Government Pension Scheme, then you should establish which local pension fund you deal with. The LGPS is administered locally by 86 local pension funds in England and Wales.  


Who needs to know 

Your members of staff will want to know about your pension scheme arrangements, and what system is in place for auto-enrollment.  


Your trustees will want to be assured that your charity is complying with the provisions of the Pensions Act 2008 and supporting your members of staff. They will also want to be aware of the risks associated with any existing or historic pension scheme, especially if you have or previously operated a defined benefit scheme. 


Where next? 


Pensions top picks: some recent and expected developments (November 2022) 

What just happened to my defined benefit pension fund? 

MHA – A new dawn for charities in local government pension schemes (February 2022)  -  

The Pensions Regulator (TPR) protects the UK’s workplace pensions. TPR makes sure employers, trustees, pension specialists and business advisers can fulfil their duties to scheme members.