New employers are taking the minimum steps to comply with auto-enrolment rules and are turning to IFAs and accountants to outsource their pension duties, according to the Department for Work & Pensions.
The DWP's latest interim report on auto-enrolment, published yesterday (February 26), found employers new to the market were typically seeking just enough information to become compliant when undertaking research about auto-enrolment.
The DWP stated the process was almost always prompted by a letter from The Pensions Regulator (TPR), directing the employer to TPR’s website.
The report focused on new employers who employed their first workers between 2012 and 2017 and were required to implement automatic enrolment by February 2018.
It also looked at employers whose automatic enrolment duties began as soon as they employed their first eligible worker, between March and August 2018.
It was based on interviews with 43 employers and 49 workers, 37 of whom remained in their employer’s scheme, and 12 who opted out.
According to the report, the majority of workers are only contributing the minimum rate to their pension, despite many stating they wanted to save more for their retirement.
Where automatic enrolment implementation was outsourced, the employer typically passed the responsibility to an accountancy firm.
A smaller number of employers outsourced to an IFA or bookkeeper, but rarely approached an intermediary they had no previous relationship with.
Some employers also sought information from family members or colleagues who had prior experience with automatic enrolment.
Those with an ongoing relationship with an intermediary often asked them to take on the monthly administration of automatic enrolment.
In rare cases employers were willing to pay an ad hoc fee for consultative support to help understand their duties and choose a provider, the DWP found.
Employers who decided to conduct auto-enrolment themselves undertook relatively limited research, usually focused on a visit to the potential provider’s website, and skim-reading the topic online.
Only in a few cases did employers spend more time gathering information on the rules for compliance.
The report showed new employers were typically selecting the first pension scheme to be offered at their workplace, often opting for the National Employment Savings Trust (Nest), unless prompted to do otherwise by an intermediary or other outside source.
The research also revealed most employers found the cost and time of automatic enrolment to be lower than anticipated.
Employers who felt less confident were more likely to outsource the implementation process.
Meanwhile, the majority of workers opting out of auto-enrolment were aged over 50, with nine of the 12 opt-outs interviewed being in this age range.
Opt-outs were typically either paying, or had paid off, a mortgage, and were still working full-time.
The most common reason for opting out was a belief they had already built up, or would build up, sufficient provision elsewhere by the time they retired.
The DWP found employers were aware of the increase in contributions in April 2018 and 2019 and felt relatively neutral about it.