The legend of King Canute trying in vain to hold back the sea is one that is well known to most people. Whether that actually happened is probably questionable but the sentiment is strong. Some things are inevitable such as the inescapable progress of the auto-enrolment legislation as it became reality.
So far, a slow trickle of larger companies with dedicated resources and perhaps the finances to help them achieve the smooth introduction of the regulations have been establishing their arrangements. But there is also one very important factor that these companies have in their favour that the vast majority of employers may not – the market currently has the capacity to meet their demands. By the market I am referring not only to the providers of the schemes into which the eligible workers are to be enrolled and contributions paid but also to the advisory firms who help the companies to design, source and implement pension schemes that not only meet the obligations but form an integral part of the employee benefits package.
The Pensions Regulator's own projections of the number of firms reaching their staging date show that over 2,000 employers a month are expected to reach their staging date in November 2013. This rises to over 12,000 per month in May 2014 for employers with employee numbers in the range of 160 to 249.
Industry experts have predicted that the traditional pension providers have the capacity to install 2,000 schemes per month. If this turns out to be true in practice, where are all the employers going to go? They may have no choice other than to go to the national employer savings trust (NEST) that is legally bound to accept all employers that want to use it. That might be the best place for those employers, but surely wouldn't it be better for them to have a choice over which solution they adopt?
The numbers of firms reaching their staging dates each month then continue to crash against the rocks of the capacity issue somewhat relentlessly until the tide turns – 40,000 per month in March 2016, 60,000 in August 2016, nearly 100,000 in February 2017 before they peak between October to December 2017 at over 130,000 employers per month.
Pension providers will not want to take on more business than they can cope with. Where in the past, any deterioration in service standards, while undesirable, would not necessarily be considered to have a have a major impact upon their business, under auto-enrolment, heavy fines may be imposed by the regulators for non-compliance. So it is vital that they control the services and therefore the number and nature of the schemes that they take on.
The reputational risk of failing is extremely high and there is a growing feeling that providers will only look to take on those employers who are showing an active interest in pension provision for their staff. This is yet to result in a minimum contribution amount being officially set by any of them but some are refusing to offer terms for companies not engaging in the process with sufficient time before their staging date to ensure they plan properly.
It is inevitable that as the number of companies seeking help from advisory firms increases, the fees they charge will rise. Many are now actively selecting the size and character of the companies that they will work for and are turning away those that do not meet their business models. Companies who do not engage with advisers early in the process will need to squeeze their services into a smaller timeframe and may find that they have to pay a sizable increase for the delay. There are some firms that have set a minimum fee level that employers must meet if they want to engage their services.
We would urge you to start your auto enrolment planning early if you do not want to be left high and dry when auto- enrolment dies down and the tide finally goes back out.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
