Here's the facts. Between May and August 2014, approximately 25,500 employers will be required by law to start automatically enrolling their “eligible jobholders” into a qualifying pension scheme for the first time. As Naomi Brown, Associate at Sacker & Partners warns, “capacity crunch” in the pensions industry, is inevitable.
As we all know, the new automatic enrolment requirements are being phased in starting last year and leading up to 2017, with the largest employers. After their staging date, employers are required to automatically enrol “eligible jobholders” into a qualifying pension scheme. Next summer sees the turn of employers with between 62-159 employees. This means that from May to August 2014, it is expected that approximately 25,500 employers will need to start the automatic enrolment process. In contrast, only approximately 650 employers are staging over the same period in 2013, although the number of employees affected will be substantially higher than in summer 2014.
As a result of the large number of employers staging during this short window, the market is anticipating a huge surge in employers requiring advice and services from pension and payroll providers at the same time. Whilst these providers have managed so far in dealing with smaller numbers of employers, there are concerns about how they will have the capacity to cope with this volume of employers. It is likely that many of these smaller and less well-resourced employers will want to use NEST or another provider-based pension vehicle, such as a master trust or a contract-based group personal pension, rather than having to set up, or adapt their own pension arrangement. Although there is now a vibrant and growing market in this area, it can take time for a provider to admit a new employer and get their pension arrangements up and running. Providers are, therefore, likely to come up against a barrier, in terms of the number of employers they can realistically process at the same time.
Employers may also experience difficulties accessing other advice or support they need. For example, many employers will need to work with their payroll provider to put in place systems for monitoring pay levels and processing contributions and refunds. Payroll providers' resources could be spread thin if they have a large number of clients staging at a similar time, or their clients have different or complex needs depending on their automatic enrolment strategy. They may therefore be forced to prioritise their bigger clients. Ultimately, if the payroll provider is not going to be able to provide the required functionality in time for the employer's staging date, it could have to change provider and/or look at obtaining a middleware software solution or even additional manual resource to help fill any gaps. Again this will take time. Employers with staging dates in this period can, and should, consider acting now in order to beat the crowds next summer. Some simple first steps include: Assess your workforce; workforce size; likely contribution quantum; staff turnover figures and risk appetite. You will also need to make decisions about benefit design; what are your legal responsibilities? What type of scheme do you want to offer? What elements of pay are to be pensionable?
Will there be any tailored elements? And what will be the default fund? Next, assess the existing pension provision, ensuring that any existing scheme is compliant and designing arrangements to fill any gaps. Engage early with your payroll provider, checking whether its systems are compliant with any planned automatic enrolment vehicle. Raise awareness, giving non-savers an opportunity to sign up to a qualifying scheme ahead of the staging date could minimise the number of people you need to automatically enrol. Also, consider bringing your staging date forwards to avoid the capacity crunch, employers doing this will need to go through a notification process. Engaging early with the process is just common sense. You couldn't expect to just walk into a showroom to buy a new car and drive away that day without knowing what you want, how you are going to use it and how much you want to spend. It's likely you would have to walk away and come back when you have made these decisions and the same goes for auto-enrolment. Do your homework before you knock on a provider’s door.
