19 September 2016, 15:33

Small charities and auto-enrolment: choosing a pension scheme

The Pensions Regulator provides CFG monthly auto-enrolment updates. These blogs provide the latest guidance and messages from the regulator adapted by CFG for the charity sector. This month provides top tips for choosing a pension scheme. When do I need to have a pension scheme in place? What do I need to look for in a pension scheme? Who can help me? How much is setting up a pension scheme going to cost? Useful links You may already have a scheme for your staff which you might know as a ‘stakeholder pension’. If you want to use your existing scheme, then it’s important that you check with the provider that it meets the automatic enrolment rules – not all do. If you need to choose a new scheme, then you’ll need to find out which ones are available to you, and how to choose between them. The information below will help you to understand what to take into consideration when choosing a scheme, and where to go for help and support.

When do I need to have a pension scheme in place by?

Your workplace pensions duties start on your staging date (your specific staging date will be on all the letters you receive from The Pensions Regulator).  If you have staff who must be put into a pension, you need to give yourself plenty of time to research your options even if you already have an existing scheme.

What do I need to look for in a pension scheme?

It’s important that you look at different schemes and weigh up the different features offered before you decide which is suitable for you and your staff. You need to think about whether the scheme will accept all your staff, how much it will cost and whether it will work with your payroll.

Tax treatment

You should be aware that different schemes apply different tax relief arrangements – relief at source, or net pay arrangement. If you have staff who don’t pay income tax, it's important to check that the scheme uses ‘relief at source’ as they would still get tax relief from the government. However, some schemes using other tax relief arrangements may have lower member charges. So you should consider carefully what is right for your staff. More information about tax relief in pension schemes can be found on TPR’s website – www.tpr.gov.uk/scheme

Investment options

Any scheme that you use for automatic enrolment must have a ‘default investment arrangement’. This is what your staff’s money will be put into, as they cannot choose their own investments when automatically enrolled (but they can make a choice after). Charges paid out of member savings in default investment arrangements must be no higher than 0.75% a year of the member’s fund. You may also need to consider whether the scheme offers investment options that suit the particular needs of your staff and your organisation. For example, your charity may want to look into ethical investment options that match your organisation’s charitable objectives. For example, if you are a medical research charity you may want to rule out the possibility of investing in tobacco companies. Whilst you may not be able to have control over this the view that ethical investments tend to be more sustainable (and will therefore provide a greater return over the long term) is becoming the status quo.

Compatibility with payroll software

If you use payroll software you should ask the payroll provider whether it’s suitable for automatic enrolment and whether it’ll work with the pension scheme you’d like to use.

Additional services

Some pension schemes may offer you extra services, such as working out who needs to be put into a pension scheme for you, processing requests to join the scheme or helping with your ongoing duties. You have to write to your staff individually to explain how automatic enrolment applies to them, including how tax relief works. Some pension schemes may offer to do this for you. If the scheme doesn’t do this, the Pensions Regulator has letter templates which you can use. Or your payroll provider may offer this service – CFG’s small charities auto-enrolment guide has some guidance on how to work with your payroll provider. It’s important that you know what administrative features your pension scheme offers so that you can weigh up costs and charges against the level of services offered. Some services may make automatic enrolment easier for you over the long term.

Who can help me?

The Pensions Regulator

TPR has information on its website which will help you to understand what you need to do, and by when. It also provides a list of those schemes which are suitable for automatic enrolment and have told us they are open to all employers, no matter their size.

CFG

CFG has a free auto-enrolment guide for small charities guide which you can download from our website. CFG also runs a pensions forum for our members – to find out more please email anjelica.finnegan@cfg.org.uk

Payroll software

While your payroll software can’t choose a scheme on your behalf, it’s important to know that some may be more compatible with certain pension schemes than others. Payroll software can also help you with other automatic enrolment tasks. For example, it is likely to be able to help you to identify  who must be put into a pension scheme. Payroll software can also help you to calculate contributions and manage your ongoing duties.

How much is setting up a pension scheme going to cost?

The costs of setting up a pension scheme can vary from scheme to scheme – so it’s important that you ask the scheme provider what charges you and your staff will pay. Recent research by TPR shows that automatic enrolment doesn’t have to be costly, and that it’s important to start your research and planning in good time. Leaving your duties to the last minute is likely to cost you more. In addition, you risk a fine if you do not complete your duties on time.

Useful links

How can I find out my staging date? www.tpr.gov.uk/ae-checker Do I need to provide a pension scheme for my staff? www.tpr.gov.uk/ae-checker Which pension schemes are open to all employers? www.tpr.gov.uk/scheme Which pension scheme tax treatment is better for lower-paid staff? www.tpr.gov.uk/scheme What costs are involved in setting up a pension scheme? www.tpr.gov.uk/costs What do I need to tell my staff about automatic enrolment? www.tpr.gov.uk/employers/write-to-your-staff