Small businesses tend to make the mistake of thinking that automatic enrolment is tomorrow's problem. However, the looming ‘capacity crunch’ among pension providers and master trusts is beginning to surface, with over 12,000 business rushing to comply with their legislative requirements in time for their staging date. Auto-enrolment is coming, and directors, partners and SME owners need to be prepared.
In the dark
Since 1 October 2012, large companies have been required to enrol their employees in a workplace pension scheme and contribute a percentage of their employees' earnings to this scheme. The new law requires every employer (whether large or small company) to automatically enrol workers in a workplace pension scheme by 2018.
However, many people are still in the dark about auto-enrolment, despite the fact that it will affect virtually every employee in the UK by 'forcing' them to enrol in a pension contribution scheme. According to the Department for Work and Pensions (DWP), automatic enrolment is the best way to overcome people's "savings inertia" by encouraging them to save.
Auto-enrolment has been created to encourage employers to help more people save for their retirement. Every single employer must now be responsible for their employees' retirement savings as well as their salaries, so employers need to pick a pension scheme that works best for their workers.
Employers are faced with the difficult task of having to comply with their legislative requirements at a time when there will be an unprecedented demand for the services of pension providers and financial advisers. However, most of the financial adviser sector is choosing not to advise on auto-enrolment.
Sable Wealth have reliably learnt that some pension providers are already refusing to take on new clients unless they have at least six months until their staging date, or meet their minimum contribution levels. Either way, this could leave some businesses out of pocket.
Scottish Life previously said it may be forced to close its doors to new auto-enrolment business in 2015 due to capacity issues. According to FT Adviser, Aviva also admitted that, owing to capacity issues, it may have to leave the auto-enrolment market post-2015 once the staging date arrives for smaller businesses.
The Pensions Regulator recommends that businesses begin planning 12-18 months before their staging date to avoid being left out in the cold. The advice gap is large and growing; the illustration below demonstrates what is coming.
The Centre of Economics and Business Research has estimated that the implementation and management of auto-enrolment for a typical firm with one to four employees will cost an average of £11,300 in man-hours. This cost is likely to increase the longer auto-enrolment is delayed.
Auto-enrolment is far more than just a simple case of setting up a scheme - the Pensions Regulator's guide for employers is complex, running to over 600 pages. The trickiest parts are the initial and ongoing staff communication, the opt-in/opt-out management, and the integration with the payroll function on an ongoing basis. The need has never been higher for an ongoing relationship that covers full set-up, implementation, communication, and ongoing compliance oversight.
We are one of the few advisory firms able to offer a complete outsourced auto-enrolment service. We do this by proactively managing your auto-enrolment project and driving the engagement with you. Contact us on +44 (0) 20 7759 7519 or email our team.
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