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The Actuary The magazine of the Institute & Faculty of Actuaries

UK employers urged not to underestimate auto-enrolment

The UK’s largest employers are underestimating the scale of the challenge that auto-enrolment presents to their organisations, according to a report by Hymans Robertson. The study, which canvassed the views of finance and HR directors at the UK’s largest employers - those with over 5,000 employees - found that 68% think it will take less than a year to get ready, rather than the recommended 18-month window.

The research was undertaken to test whether the main decision-makers at companies in relation to auto-enrolment - finance directors, who will provide the budget, and human resource directors, who will project manage the implementation - are aware of the scale of the challenge, in terms of the resource and time needed to deploy that resource ahead of the deadlines. A failure to do so may result in a last-minute stampede to find pension solutions that neither the pensions provider market nor NEST (the National Employers Savings Trust) can cope with.

Lee Hollingworth, head of DC at Hymans Robertson, said: "To give some context to the scale of the problem, in the first six months from October 2012, 600 of the largest organisations in the UK (employing about a third of the UK workforce) will need to auto-enrol employees and comply with the regime. The fact that the vast majority of decision makers at the UK’s largest employers grossly underestimate how long it will take to get ready implies they plan to leave it to the last minute, which means we are heading for a car crash.

"Leaving it too late will result in huge problems for these large companies. Failure to prepare in time means companies will lose out on pricing when it comes to pension provider selection as the provider market has a finite capacity for dealing with new clients. At best this will push up pricing, at worst it will leave many employers unable to source a solution, meaning those who leave it latest will lose out most.

"Added to this they will need to throw more resource at the project to be ready in time to avoid compliance issues and the related penalties. Clearly the Department for Work and Pensions and The Pensions Regulator has more to do to make companies aware of the deadlines and what’s required for a successful implementation ahead of auto-enrolment.

Hollingworth added: "With increased demand for new pension structure, it is highly likely the pensions provider market will be more selective about the business it takes on. This will push up pricing and providers will be forced to become very selective when offering terms, making it more expensive for employees with less investment from providers in supporting employers with the auto-enrolment process. This will push more companies towards NEST, which in turn could put significant and unexpected pressure on this scheme.

"Further down the line this could put plans to get the employees of smaller companies automatically enrolled in jeopardy. The demands of large employers could represent a serious risk to NEST being able to deliver to its target market - smaller employers."