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The Actuary The magazine of the Institute & Faculty of Actuaries

One third of UK firms opting for unsuitable auto-enrolment vehicle

One third of the UK’s largest employers are planning on using a type of pension scheme for auto-enrolment that is ’ill-suited’ to the large number of members that will be enrolled from October 2012 onwards, according to Hymans Robertson.

30% of respondents to a study by the consultant - finance and HR directors at the UK’s employers with over 5,000 employees - are expecting to use an unbundled trust-based, defined contribution scheme to comply with auto-enrolment.

This is likely to lead to a large increase in the cost of third-party administration, including internal HR and payroll processing, while large companies that leave auto-enrolment planning too late may suffer, Hymans Robertson warns.

Lee Hollingworth, head of defined contribution, said: "For many large employers, bundled schemes will be much more appropriate, cheaper and more efficient to implement, but there is a drawback. 69% of large companies have said they intend to spend less than 12 months preparing for auto-enrolment. If that becomes a reality, then anyone choosing a bundled scheme is going to be left with a choice between an expensive, ill-fitting unbundled, trust-based scheme or NEST, which is really designed for small employers."