To date the introduction of workplace pensions under the new automatic enrolment has been a relative success with millions of employees enrolled. The number of employers affected has been relatively low.
There is a big change on the horizon though once the staging dates arrive for smaller (sub 50 employees). At this point the number of employers affected increases dramatically.
The numbers are staggering. In the 21 months to December 2015 circa 75,000 employers will stage. In the 3 months to March 2016 110,000 will stage. In the 21 months after December 2015 there are over a million employers needing to stage, a thirteenfold increase.
While the number of employees staging is naturally reduced each employer will need to go through the same process irrespective of the number of employees.
If we leave aside the issue regarding whether the industry is yet ready to cope with the volumes we are concerned with the impact on the advice that may be available to employers. The advisers (typically Accountants or IFA’s) to larger employers have had time to carry out planning exercise and fully prepare for Automatic Enrolment.
They have had the chance to consider pension scheme selection for the benefit of their staff given the relatively short period to 2018 when contributions scale up to their full 8% and the full impact on saving for retirement and the importance of investment choice is realised.
They may have considered and had time to implement salary sacrifice schemes to benefit everyone. They may have even considered remuneration strategy overall and planned to increase pensions rather than salaries affording NI benefit.
So what lies ahead for the smaller employers? Our discussions show that initially many smaller employers simply view the upcoming 1% contribution as an additional tax. It is much more than that though.
With 9 months to go until the large scale staging begins we think that smaller employers will struggle to obtain the advice and help they need with fundamental decision making and planning. With limited access to resources and skills within their own businesses it is the smaller employers that desperately need effective communication and the highest quality of advice.
However, we see that he only way the industry can react to a thirteenfold increase in demand for workplace pensions is to commoditise provision as far as possible. Completely at odds without the needs of the sector
Our belief though is that with the increase in volume and limited capacity in the marketplace to deliver advice the smaller employer faces a tough time.
What can they do? The key is to start and start now. With a year to your staging date you should already be starting your Automatic Enrolment planning. Get in touch with your adviser and do it soon.
