NOW that the 100,000-plus employee organisations have been swept into the auto-enrolment net, the train has rolled on and a much larger tranche of 30,000 or so companies will find themselves facing the challenge of complying with auto-enrolment between April and July.
This is creating a huge squeeze on the resources available in the pensions sector and, while large companies have the ability to deal with the challenges of auto-enrolment, management in smaller companies generally has neither the time nor the resources to cope, which is leading many to adopt a head-in-the-sand attitude to auto-enrolment.
The problem SMEs face, according to John Taylor, managing director of customer and proposition at the National Employment Savings Trust (NEST), is that pension providers do not have limitless capacity to take on everyone at short notice. NEST is the online pensions provider set up by the government as a public service organisation and it has no option but to take on every employer that requests its service, but even NEST has had to gear up hugely to meet this.
“We are obliged by our charter to accept any employer that comes to us and we have geared up to take at least half, or 15,000 companies, this year. There are other providers, but employers that wake up late in the day and then try to fulfil their statutory obligation to put a scheme in place for staff may well find themselves turned away. If there is a major capacity crunch, as seems likely, we expect to see very high volumes of employers coming to us for schemes,” Taylor comments.
Gurmukh Hayre, a partner in KPMG’s pensions practice, warns there are a number of steps that employers need to go through. “By and large, a lot of small companies will inevitably be ill-prepared and will fail to appreciate what is involved in making themselves compliant in time,” he says.
T minus one month
There is barely a month to go to the 1 April date by which the next wave of companies must be compliant, though there is some grace in that employers can inform staff that they intend to avail themselves of the three-month delay that the law allows. But Hayre points out that the process itself will take at least three months and more likely six, given that employers are also trying to run their businesses.
The first step is to make certain by which date you need to be compliant. Then, companies need to look at their work force and find out who is eligible. The rules are clearly set out on the Department of Work and Pensions web site. The third step is communicating with staff – and there are statutory communications that have to be issued. The fourth step is to consider all the policy decisions from an employer’s perspective. For example, are you going to pay the minimum contribution or better? If better, how much better? Why? What pay definition are you going to use – gross pay, including commissions and bonuses, or basic pay? Are you going to use the three-month postponement? And then the big question: which provider are you going to use, or attempt to use?
Steve Harry, chief financial officer at the insurance benefits specialist Unum, argues that companies should take the opportunity of auto-enrolment to think about their staff benefits packages as a whole. Income protection and critical illness cover can be a far more immediate benefit for an employee than even a pension, he points out.
“We see auto-enrolment as a huge catalyst to bring large numbers of people who previously were outside the insurance net to the table,” he comments.
Unum provides group risk insurance products to companies through brokers. “Pensions take the lion’s share of the employee benefit pound, but other benefits, such as income protection, may well be needed a long time before the employee ever gets near retirement – and these insurance products can have an impact while the employee is still very much a part of the company,” he concludes. ?