Providers are imposing minimum employee pension contributions limits and levying direct employer charges as firms try to cherrypick automatic enrolment business.
Aegon has set a minimum average contribution limit of £100 a month per member for existing schemes and £150 a month for new schemes, potentially squeezing out employers with staff at the lower end of the pay scale.
A spokeswoman for Aegon says: “Some costs of running a scheme, whatever the size, are fixed. The minimum contribution levels are set to cover the costs of setting up and providing ongoing high levels of service to scheme members.”
Aviva says it applies a minimum average monthly contribution and a minimum number of members when considering schemes. However, the provider declined to specify exact figures.
Aviva will also consider levying an additional employer fee to cover a shortfall, a move it first indicated in May.
In addition, the insurer says it will always offer to enrol new employees if their employer already has an Aviva scheme.
Friends Life also says it will enrol any new employee into an existing auto-enrolment scheme.
However, Friends Life will not serve some small schemes and considers minimum average contributions an “important factor” in pricing a scheme. It says it will also consider a fixed employer fee to cover shortfalls in some cases.
Royal London has an £83 minimum average monthly contribution limit for new schemes. The firm says it is considering levying an employer fee where minimum contributions fall below that and will not accept schemes with fewer than five members.
Standard Life’s minimum requirements are five members per scheme and a minimum average monthly contribution of £25 per month initially and £100 per month from 2018.The insurer may decline terms for existing schemes if the nature of the scheme changes significantly, for example, by adding a large number of new employees.
Legal & General has introduced a flat £1,000 set-up charge for schemes with fewer than 500 members. The firm says the charge is paid by the employer and so does not affect the price paid by members. Prudential and Scottish Widows had not responded at the time of writing.
Now: Pensions and B&CE, which runs The People’s Pension, say they do not impose minimum requirements and will accept any schemes.
Under auto-enrolment legislation, Nest is required to accept any scheme.
Syndaxi Chartered Financial Planners managing director Robert Reid says: “With a number of providers there is too much human intervention and not enough straight-through processing, which means once premiums go down, those providers struggle.”
How providers are cherrypicking auto-enrolment business?
- £100 average monthly contribution for new members of existing schemes
- £150 average monthly contribution for new schemes
- Undisclosed minimum average contribution and scheme size
- Will not offer terms to some small schemes
- Minimum average contribution of £25 per month, rising to £100 per month from 2018
Legal and General:
- Has introduced a flat £1,000 set-up charge for schemes with fewer than 500 members
- Set an £83 per month minimum average contribution for new schemes