A looming ‘capacity crunch’ among auto-enrolment pension providers could begin to surface in a significant way in the opening months of 2014, far earlier than current expectations that providers may begin closing doors in 2015 and beyond.
In a report on those so far staged in over the first 15 months of the reform coming into force, The Pensions Regulator reveals around 3,670 companies have been auto-enrolled, with some 2m workers choosing not to opt out.
In just the first two months of 2014 alone, some 4,000 medium-sized firms will be auto-enrolled, which one industry expert has said could raises the spectre of a long-feared ‘capacity crunch’ that could see providers close their doors.
Laith Khalaf, head of corporate research at Hargreaves Lansdown, said: “This gives some idea of the scale of the capacity crunch that it is widely feared will surface in 2014.”
FTAdviser sister publication Money Management first raised concerns over capacity issues in October, when it revealed evidence from advisers that some pension providers were already turning away early small-firm AE business.
Anecdotal evidence also suggests a number of firms are struggling, with reports of employees not receiving ‘welcome packs’ with opt out forms until after payments have begun to be taken due to administrative logjams.
Providers have confirmed that they may eventually seek to close their doors as the number of firms being staged in expands, though this had been expected to occur at the earliest in 2015,
Scottish Life has previously said it may be forced to close its doors to new AE business in 2015 due to capacity issues. Aviva was also said to have admitted it may have to leave the AE market post-2015 once the staging date arrives for smaller businesses owing to capacity limits.
Scottish Life also warned that the lack of AE advisers could mean medium-sized or smaller firms have difficulty finding advice as their staging dates approach.
Fiona Tait, business development manager at the Royal London-owned insurer, warned that some 12,000 firms will have staging dates by May 2014, and that this figure will rise to over 90,000 every month by the end of 2017.
Mr Khalaf said: “The number of companies auto-enrolling is beginning to expand exponentially, and indeed the true test for auto-enrolment lies in 2014 and beyond.
“Employers have the difficult task of complying with the regulations, at a time when there will be unprecedented demand for the services of pension providers and advisers.
“Throw into the mix the fact that the government is still pondering the final rules, including a price cap, and 2014 has the potential to plunge the auto-enrolment programme into mayhem.’
The report from TPR also revealed that although 2.2m people have already signed up to a pension under AE, more than 3m are either too young, too old or do not earn enough to qualify.
Mr Khalaf said: “Many of these workers cannot afford to save; however some can, particularly those who have several part-time jobs, or those part-time workers with higher earning spouses.
“Again, communicating the need to save and the benefit of an employer pension contribution can encourage opt-ins from those who could and should be saving.”
