Advice capacity questions as small firm staging looms

By April of 2017, all employers must provide a qualifying defined contribution workplace pension scheme for all eligible employees.

Focus has now fallen on those with less than 50 employees, who are being enrolled in stages now until October this year. Those with less than 30 employees will begin hitting their dates from January next year, with a 15-month window set aside to get through this sizable group.

It has been cited as a big business opportunity for advisers, however research conducted by Defaqto for Now: Pensions in November 2014 shows that around one in five advisers will not advise the smallest companies on their auto-enrolment obligations.

More than half of the 244 advisers polled said that micro and small firms will not represent profitable business for them, with three out of 10 believing at that time that there is too much administration involved, and a further 25 per cent deterred by how much time it will take.

Need for advice

A spokesperson for The Pensions Regulator says that the organisation’s latest research shows that the majority of small and micro employers think that auto-enrolment is a ‘good idea’ and understanding of their new duties remains high.

The research also shows that eight out of 10 employers surveyed last autumn who are due to reach their staging dates this summer had already started preparing for auto-enrolment.

Tim Jones, chief executive at the National Employment Savings Trust, admits it is difficult to predict how auto-enrolment for smaller firms will pan out, but says that the signs are positive.

“Now it’s the turn of small and micros and it’s worth pointing out that they are supportive of auto-enrolment: around seven out of 10 agree that workers should have access to a workplace scheme. But they want it to be quick and easy - and so do we.”

For this reason smaller firms state they are planning to intermediaries to help them enrol, which raises the prospect of a crunch if too few advisers are picking up this business.

“Our research shows that three-quarters of small and micro employers intend to turn to someone for support such as an IFA, accountant or payroll provider. Of those, 59 per cent expect to turn to an accountant and around one in 7 expect to turn to an IFA.”

Henry Tapper, founder of auto-enrolment service Pensions PlayPen, says that what is noticeable is significant regulatory simplification for small and micro enterprises and a general easing of complication around the processes, with the major hurdle being the selection of the scheme.

“As the payroll complexities fall away, payroll agents will incorporate auto-enrolment processes into ‘business as usual’. Where there is likely to be problems is in the choice and on boarding of the pension itself. We see this as the bigger challenge.”

Morten Nilsson, chief executive of Now: Pensions, believes that awareness of auto-enrolment amongst small firms is generally good but the legislation is complex and for the majority of these smaller firms this will constitute the first time that they have had to set up a pension scheme.

Mr Nilsson says: “Recent research we conducted revealed two-thirds of firms who are yet to stage don’t have any existing pension arrangements for their staff.”

Helping choice

Mr Nilsson says that for firms who are yet to stage, more needs to be done to make sure they are able to easily identify a high quality, low-cost scheme for auto-enrolment.

“The reality is that as the size of companies staging reduces, the pensions market is likely to contract. There’s already evidence of pension providers cherry picking auto-enrolment business so smaller firms need to be aware that not all pension providers will be happy to accept them.”

He says that the Pensions Regulator’s proposed solution was to publish a list of providers that accept all firms for auto-enrolment, but last month this plan was “shelved”, something he describes as a “disappointment”.

“Nearly two thirds – 61 per cent - of companies we surveyed said they would welcome a definitive list of pension providers that accept all firms, regardless of size, to help them comply with their auto-enrolment duties.”

For his firm, of course, this is also about ensuring they don’t just default into Nest, which was set up in part to capture the mass of firms that fell through the cracks of the rest of the market.

Nest’s own Mr Jones adds that it is clear that the employers yet to stage are unlike those that have come before, with the possibility that many of them may just have one person dealing with everything, from money to marketing. This, he says, is why facilitating advice for smaller firms is so important.

Mr Tapper intimates the need for an alternative to advice to aid choice, echoing his warning that the biggest challenge lies in choosing the pension and documenting that choice.

“There is urgent need of proper digital comparison facilities that allow employers to make informed choices rather than be defaulted into pensions which may or may not be suitable.

“Where a decision is taken without information, it will be hard for an employer to subsequently justify it, should it turn out to have been a bad one.”

Pragmatic approach

In February this year, Angela Seymour-Jackson, managing director of Aegon’s UK workplace solutions, warned that smaller companies still do not know what they need to do to get staff ready for auto-enrolment.

Ms Seymour-Jackson says that as the deadline for smaller firms approaches, some businesses were running into trouble over missing staging dates, with the possibility of many potentially incurring penalty charges from the regulator.

In February, TPR data revealed a total of 166 employers were fined for failing to comply with their workplace pension duties in the last three months of 2014. So far, since auto-enrolment started being rolled-out in 2012, 169 employers have been given £400 fines.

Ms Seymour-Jackson says: “As more small firms pass their staging dates there will be hundreds and possibly thousands that find themselves with fines to pay.

“Unfortunately, a lot of the firms we speak to still have no idea about auto-enrolment, the obligations it carries and the amount of time required to get ready. This is something we’re trying to change.”

Mr Tapper has a differing view, stating that non-compliance is less of a concern as most smaller firms outsource payroll compliance to third parties.

“Where there is greatest risk is with those employers who do not have an outsourced pension. The most likely reasons for non-compliance appear to be: deliberate avoidance (creating opt-outs); ignorance (didn’t realise this meant us); process (mistaking postponement for staging).”

A spokesperson for The Pensions Regulator adds that as the numbers of employers reaching their staging date grows and the employer type changes, the organisation expects to see an increase in the use of its powers.”

That means more fines for employers for whom £400 is probably less of a drop in the ocean. Which brings us back to the benefits of advice - or the alternatives for those unwilling to pay or unable to find an adviser.

The spokesperson continues: “We publish regular compliance and enforcement bulletins which show where we have used our powers and highlights trends so that other employers can benefit from lessons learned.”

ruth.gillbe@ft.com