Lessons from larger firms amid clampdown

This halfway point seems as good a place as any to see what lessons can be learned from the larger employers and their providers’ experiences so far - and not least from the failings which have been identified in a major and ongoing clampdown on compliance.

The handful of the UK’s largest companies ‘staged in’ in October 2012 already had significant pension provision in place and were generally just tidying up around the edges, although some of the largest retailers with more short-term staff did set up whole new schemes.

The next couple of years also appeared to have been fairly smooth, with pension providers falling over themselves to offer their services and bring in new business to freshly-developed propositions.

Experts agree problems started to arise around this time last year, when around 30,000 medium-sized employers - those with approximately 62 to 149 workers - were given a deadline to complete their declaration to The Pensions Regulator by the start of December.

This led to a surge in non-compliance penalties in the final quarter of 2014, with a total of 169 fines issued by the regulator last year including 166 of the £400 fixed penalty notices in the final three months.

This represented the vast majority of all enforcement action in relation to the new rules undertaken so far.

Aon Employee Benefits’ head of auto-enrolment Claire Abrahams tells FTAdviser that the medium-sized employers found it hard, with overworked HR managers struggling with the intricacies and implications of the process.

“There’s a lot of work still to be done; we’d like to see the regulator publicise the fines a bit more to make sure employers actually went out and got advice.”

Alastair Burt, managing director at Source Pensions, adds that a general lack of awareness and engagement with the new legislation was the cause of most penalty notices. “Data quality is also poor, with an awful lot of last minute rushes before, or even after, staging dates.”

Caught on the hop

Angela Seymour-Jackson, managing director of Aegon UK’s workplace solutions team, says that even the larger employers with dedicated pension departments underestimated how difficult it would be to get their hands on reliable employee data.

From the provider side, Ms Seymour-Jackson admits her firm had also underestimated how “long it would take to train people up to be self sufficient”, especially among the medium-sized employers without a dedicated pension manager with expert knowledge.

She explained that her team has gone from 12 to 28 in terms of support staff, with increased contact points and front office improvements. “It’s been a big cost, but a big reward through increased client retention.”

Sue Waites, a partner at consultancy Hymans Robertson, agrees that early adopters were surprised at the difficulty in complying.

“Providers tried to help, but payroll system upgrades often clashed with the real-time information requirements that were brought in for [PAYE] staff. The fines are not that surprising, as many simply didn’t allow enough time pre-staging, although there has been a certain amount of regulatory leeway for companies that came clean.”

Barnett Waddingham’s head of defined contribution Mark Futcher comments that many payroll departments simply did not get their act together in terms of data and providers had issues with their ‘middleware’, the software connecting the various existing systems, which were often rushed through untested.

Standard Life’s head of pensions strategy Jamie Jenkins argues that some providers have still not invested sufficiently in their systems and support, pointing out that ‘straight-through processing’ is essential to be able to cope with the data demands.

Tom Nall, director of workplace solutions at SimplyBiz, notes that companies internally running weekly payroll were initially resistant to changing their processes.

“Just getting correct email and postal addresses can be hugely time consuming. Clearly the industry is now making steps towards real integration, but an outsider might find it surprising how long this has taken.”

Time to move?

As larger companies approach the three-year anniversary of their original staging date and move through the ‘re-enrolment’ process, many will take the opportunity to review their initial choice of provider.

Ms Abrahams says some companies will looking at deals that were made early on by providers trying to get business in the door. “We’re inundated with people revisiting their auto-enrolment provision, they don’t want the sales pitch this time round, just someone who can get the job done.”

Those that have encountered issues will have a more practical set of criteria this time around, while price changes necessitated by a charge cap and which have led some firms to introduce add-on charges to meet margins may also be a factor.

Mr Nall claims a secondary market is already emerging, with the benefits of moving from early solutions being keenly felt by payroll managers and finance directors, stripping out the cost of failure.

“I’ve seen evidence of this based on the pain driven back into an employer’s processes by a poor implementation.”

Jamie Clark, business development manager at Royal London, backs this by stating that many have stayed where they were because it was too much trouble to move in the early stages, but now re-enrolment has become a trigger to look at the rest of the market.

“We’re seeing tenders, mostly due to lack of systems and service,” he says.

However, Mr Futcher warns that the problem with moving providers is trying to keep track of employee data and the audit trail. “We are being asked to audit auto-enrolment as many aren’t confident things were done properly in the first place.”

Ms Waites adds that in her experience changes to auto-enrolment provision have been less about dissatisfaction and more about moving things back in house now internal teams have had a few years to get used to the legislation.

Mr Jenkins concludes that while auto-enrolment is about half way through in terms of time and assets, so far only a fraction of UK businesses have set up a qualifying scheme, with more than 150,000 hitting their staging date in 2015/16 – mainly those with less than 50 workers.

“It’s only something like 4 per cent of the employer population. Circa 45,000 firms have staged so far, out of around 1.2m in the UK.”

With companies like his still planning to charge a ‘scheme management fee’ of up to £100 per month for smaller employers, while some providers are pulling out of the market altogether, the second half of this journey could prove to be a lot bumpier than the first.

peter.walker@ft.com