Consolidation Options For Charities When Managing Current and Legacy Pension Arrangements

 

Managing a small-scale pension fund is challenging, especially with the Pensions Regulator pushing for higher standards. Even funds offering good value for money may struggle to meet the increasing demands for value and governance without substantial resources such as an experienced trustee board and supportive secretariat – a situation that those with legacy arrangements may find challenging. 

 

Employers, faced with the rising cost of contributions, might reconsider their contribution structures, potentially ending the sharing of NIC savings on salary-sacrificed pension contributions if this is something that they do. The impact of which could negatively impact employees' retirement savings. 

 

Given these pressures, employers are likely to want to consider more efficient ways to manage their schemes. In particular considering whether alternative structures, such as a consolidation provider, could provide value and better member outcomes. 

 

 

The pensions landscape has always been a complex one for charities to navigate but there are now more options than ever available that could simplify arrangements and support members to a financially secure retirement. 

 

At a recent Charities Pensions Club meeting, our actuarial partner Isio ran through with our members some other options available. 

 

One of the areas discussed for those with Defined Benefit (DB) schemes was operational consolidation. 

Consolidation isn’t the only option for those looking to simplify or enhance the future of their employee pension. There are other flexibilities in the DB space and Defined Contribution (DC) schemes also have more options. 

 

Defined contribution (DC or money purchase) schemes: Those charities who have maintained a defined benefit (DB) scheme may decide to close it in favour of a DC arrangement. Many of the master trusts have been created specifically to manage DC structures. 

 

Other structures: Alternatively, some funds may consider continuing their DB scheme if they are well funded and the employer favours run on, shifting away from the traditional Final Salary scheme to one such as CARE (Career Average) or Cash Balance. They could also consider a Collective Defined Contribution (CDC) arrangement. Though there is only one CDC scheme in existence currently (Royal Mail), some industry commentators believe this number will grow rapidly and will be highly attractive for the creation of sectoral or industrywide schemes. 

 

Insurance buy-ins/buy-outs: A buy-in is a contract with an insurance company where the insurer manages the liabilities without the need to consolidate into a master trust. A buyout is a contract that passes the responsibility of paying the future benefits of the pension fund to an insurer in exchange for the fund’s assets plus a premium. The latter can seem very expensive and may require considerably more capital than the employer is either willing or able to provide. But you no longer need to be a big scheme to consider buyout, as there are now a number of providers that cater specifically for smaller funds. 

 

 

It is said that charity begins at home. At a time when there are fewer donors yet services are in demand from record numbers of beneficiaries – both thanks to the cost of living crisis – there is good reason for charities to reflect on the cost of pension provision. 

While research by the Charities Commission shows that the consumer trust in UK charities is at its highest level for almost a decade, that alone will not solve their challenges and charitable organisations will have to cut their cloth accordingly. 

 

But there is more than one way to secure your employees’ future. You now have to decide which is the right decisions for your scheme. 

For more information about Charities Pensions Club, please contact chloe@charitiespensionsclub.com