Pension rules for Charities: Even Small Charities Must Comply

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On 1 June 2015, automatic enrolment was extended to charities with fewer than 30 employees. The latest update means all charity employers are now obligated to enrol eligible employees onto a workforce pension scheme, even if there is only one employee. Automatic enrolment came into force in 2012. The rules state that all employers must enrol eligible employees onto a company pension scheme, which both the employee and employer will contribute to. Automatic enrolment may be automatic for the employee, but the employer has their work cut out and should ideally begin preparing a year in advance of their staging date.

To ensure your pension scheme is in place by your staging date, the key things you need to be aware of are:
Staging Date
Every employer will have to be prepared for their individual staging date. This is where the charity’s automatic enrolment duties will come into effect. Those who fail to comply will face excessive fines of up to £500 a day, depending on the number of employees. Charities with 30-49 employees will need to implement a workforce pension scheme by 1 October 2015; those with no more than 30 employees will need to do so between 1 January 2016 and 1 April 2017. To find out your exact staging date using your PAYE reference, click here.

Key Criteria
Individuals have the right to opt out of automatic enrolment, although, employers have to enrol employees who:

  • Earn more than £10,000 a year
  • Are between the ages of 22 and 65 (National State Pension Age)
  • Work in the UK

8% of an employee’s earnings must be paid into the scheme with 3% made up of employer contributions, 4% of the employee’s contributions and 1% from tax relief. The table below shows who is eligible to opt in to the scheme. Those who ‘can request to be opted-in’ must be accepted by the employer and contributions must be made by both parties. Those who fall under the ‘can join a pension scheme’ can pay towards their pension, however; employers are not liable to make a contribution.

Gross Monthly Earnings Age of Employee Age of Employee Age of Employee Gross Weekly Earnings
16 – 21 22 to State Pension Age State Pension Age to 74
£486 or less Can join a Pension Scheme Can join a Pension Scheme Can join a Pension Scheme £112 or less
Between £486 and £833 Can request to be Opted In Can request to be Opted In Can request to be Opted In Between £112 and £192
£834 or more Can request to be Opted In Must be Auto-Enroled Can request to be Opted In £193 or more

What does this mean for Charities?
According to The Charity commission, in 2014, over 740 charities with an annual income of £500,000 saw a deficit in their accounts due to the automatic enrolment legislation. 97% of these charities reported a combined pension scheme deficit of over £617m. With some of the largest charities experiencing high deficits from the introduction of the automatic enrolment scheme, smaller charities are more likely to find the changes to the legislation a threat to their growth. All charities have to contribute 3% for every employer eligible. Therefore, it is important that all charities seek advice and carry out extensive budgeting and planning when reviewing their current pension scheme and introducing an efficient scheme in place.The recommended date that charities should begin to plan for their staging date is a year in advance. If you require more information, or assistance of your charities auto-enrolment process, please contact Suda Ratnam at suda@raffingers-stuart.co.uk.
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