I would like to say two things about auto-enrolment now the second phase is underway. First, that the so-called capacity crunch is a myth and, second, that all the experience the industry has gained from the first phase will be of no help whatsoever in the second.
The first phase, where large employers already running pension schemes had to extend those schemes to all their employees, is over. That was the easy bit. The second phase, where small employers who have never run pension schemes now have to set-up and run one, has just begun. This is the hard bit.
The story goes that 1.2 million small employers, where one million have fewer than 10 employees, simply cannot be reached in time by the pensions industry. They are clearly not unattainable as they are reached every week and month by the payroll industry. So why does it matter? It seems obvious to me the payroll firms are more than capable of bringing pensions to their existing small and medium clients. However, getting a pension scheme in place is only the tip of the auto-enrolment iceberg.
These new workplace reforms are thought of as pension reforms but they are not really: they are communication reforms. Every employer in the UK will soon be required to communicate directly with their employees on their staging date and thereafter in a precise and defined way. That is it in a nutshell. The problem with that, though, is the subject matter of the required communications. Pensions.
It is a subject very few are confident about and therefore one that can be difficult for employers to discuss with individuals. Employers must be careful not to give advice or guidance. They must be careful not to influence their employees’ decision in any way. But the crux of it is that employers must communicate with their employees on the subject of pensions. That makes for a bit of a minefield.
It should be possible for payroll software to send out the required template-driven emails or at least point employers in the right direction to get hold of them from the regulator’s website. But sending out an email is not communication. What if the employees receiving these emails write back? Who will answer their questions? Who would be able to? Who would want to?
This, to me, seems to be the central issue with auto-enrolment. I can see we will have no trouble establishing 1.2 million new pension schemes in the UK over the coming years but I do not think we have a hope in hell of creating 1.2 million pension experts – one in every company in the land – to do the required communication job.
We are about to see 1.2 million employers start conversations on an impenetrably complex subject with around 11 million employees. What are the chances that, when those 11 million e-mails are sent out, not one of the employees will write back? About the same odds as winning the lottery I would say…
Steve Bee is director at JargonFreeBenefits