Pensions auto-enrolment has kicked off. David Davison advises charities to start preparing.

So pensions auto-enrolment is launched this week in a fanfare of publicity. Not all positive publicity it has to be said as Karren Brady, who helps front the Government's new pension initiative on television, admitted to not having a pension herself!! Whilst falling membership of pension schemes and lengthening life expectancy makes it easy to understand the need for the new legislation the practical application is going to be much more difficult.

The roll out has highlight a serious difficulty with pension legislation, namely that it takes so long to introduce. Auto-enrolment has been about 6 years in the making and whilst individuals and employers might have had access to that little bit extra to save in the boom years of 2006/7 its not quite so easy to see where the money’s coming from in austerity riven 2012.

A survey carried out by investment manager Fidelity has wisely pointed out that choosing not to participate could cost £6,000 over 10 years, however an individual would need to find a similar amount over the same period to benefit. Not only that but the employer has to find the £6,000 as well, something that’s not going to be particularly easy for cash strapped charities. Fortunately smaller employers will have a little longer before they have to join the party but this won’t be able to be kicked in to the long grass for long and preparations should already be well underway, even if only to identify what the additional costs might be.

This should be pretty straight-forward for organisations without pension provision however for those who already have schemes the situation is much more complicated. An organisation I was with a couple of weeks ago have around 80 staff in a multi-employer final salary scheme however should they make that scheme their default scheme they have another 140 eligible staff so their pension costs would more than double. Whilst many individuals will chose not to participate it’s highly likely there’ll still be a substantial increase in costs were they to use that route.  If they decide not to use the DB scheme and set up a defined contribution scheme for new staff and those not already in the scheme their contributions to the DB scheme will rise considerably, at least in the early years, as the scheme would be deemed to be closed to new entrants.

The financial modelling of these contributions brought the impact of the legislation in to stark reality and has forced them to re-think their pension strategy to ensure it remains affordable for the future.

No doubt many individuals may join Karren Brady and forgo the extra benefit but for others inertia will be a powerful force and they will join the new pension revolution and charities need to be prepared for the impact.