Personal Pension  

Mind the AE gaps

The one thing of which we are certain is auto-enrolment is here to stay and is, in many ways, an undoubtable success.

The Pensions Regulators’ April update indicates that 10,817 employers have confirmed they met their duties by the end of March 2014, and of the 15.3 million total workers from these registered employers, an additional 3.2 million eligible jobholders have now been automatically enrolled into a pension scheme.

However, this is just the tip of the iceberg. Further statistics provided by the Pensions Regulator indicate the scale of the challenge ahead. There are around 30,000 medium-sized employers (those with between 50 and 250 staff) reaching their staging date between April 2014 and the end of the year. A further 44,500 are required to comply in 2015, 450,000 in 2016, and an astronomical 850,000 companies in 2017. With such high numbers, many are predicting a genuine risk of advisers and providers running out of capacity.

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Many companies with existing pension schemes, even those that may have already staged, may need to review and revisit their schemes now that we have clarity on the level of the charge cap (0.75 per cent) and the timing of its introduction.

The removal of active member discounts (AMDs) and any commissions will now allow companies to review and plan the next steps around their auto-enrolment journey, wherever they are in the process. These changes are clearly good news for many members who should benefit from lower charges. However, it will be interesting to see how the providers of these schemes react, and whether employers will end up with additional costs as a direct result of this decision. On the back of these changes and the Budget announcements, employers will need to seek further advice.

It is important that companies budget and plan for their auto-enrolment journey. A recent study by the Center for Economics and Business Research in 2013 stated that, even for a small business with just one to four employees, the set-up cost to comply with auto-enrolment is likely to be around £8,900, and around £15,600 for employers with 250 people.

These costs may seem high, but when you take into account the work involved, which includes selecting a provider and liaising with all parties involved, altering payroll, and ensuring the administrative and communication processes are in place to ensure compliance, you can see how the costs can quickly add up. Many companies are offering fixed-price solutions with a range of different support and advice options available to meet clients’ differing needs.

Gaps that merit attention by the “second-year stagers” have been identified by the National Employment Savings Trust’s latest report entitled Nest Insight, which has key messages for employers who are due to embark on their auto-enrolment obligations during 2014. There is concern by Nest that the next wave of employers are not allowing sufficient time or detail to manage the process efficiently, and to highlight its concerns, Nest describes the “gaps” as follows: