We always knew that staging up to 1.3 million employers through automatic enrolment would be a challenge. We also knew that the current provider market would probably struggle to cope with the sheer numbers involved.
Now that we are into 2014, with around 30,000 SMEs staging between April and December, there is a renewed focus on just how the pensions industry will cope.
What has actually happened, of course, is that existing products have evolved to incorporate automatic enrolment and new products are being brought to market.
A handful of new ‘supertrusts’ or ‘mastertrusts’ have been launched. Providers are also starting to offer ‘off the shelf’ propositions that aim to make it as easy and as simple as possible to set up and run an automatic enrolment scheme with them. Middleware providers have arrived on the scene offering a link between payroll and the pension scheme while sometimes offering other employee benefits.
It does seem that the industry has responded well to the challenge and there is a quiet confidence that it will collectively cope with all the employers staging during 2014.
What remains a problem is that many employers are still not taking action early enough.
One reason why this might be the case is that they simply do not understand just how seriously automatic enrolment could impact on their business. It’s all very well to say “you should prepare 12-18 months before your staging date” but inevitably, the question will come back “why”?
Quantifying exactly how businesses will be affected is no easy task as every business will be different. Research from the Centre for Economics and Business Research, however, gives us some good insight into the costs that automatic enrolment will bring to SMEs.
Its report, called, Finding Your Way Out Of The Auto Enrolment Maze, commissioned by Creative Auto Enrolment looks at the impact of automatic enrolment on employers with between one and 500 employees. In other words, with the exception of any new employers who set up after April 2012, the research covers every employer that will stage from 2014 onwards.
What this report shows is that most employers are quite probably vastly underestimating the impact of automatic enrolment on their business. For example, the estimated UK average one off automatic enrolment set up costs for a micro employer with between one and four employees is £8,900. It will come as no surprise that the cost is higher the larger the employer. Those costs don’t even include the cost of compulsory employer pension contributions.
The market will be able to cope with all the employers staging this year. The real problem is that employers might not be able to cope.
The sooner they start to think about automatic enrolment and more importantly, get in touch with an adviser who can help them through the maze, the less it will cost them in the long run.
Jamie Clark is business development manager at Scottish Life