The Public Accounts Committee (PAC) has expressed concerns over the next phase of auto-enrolment, as smaller employers prepare to enrol their staff between 2016 and 2018.
In a report published by PAC today, it found smaller employers had fewer resources to operate the scheme and said the process needed to be simplified. It suggested that the Department for Work and Pensions (DWP) closely monitor the experience of small employers and consider ways to simplify online tools that allow the exporting of data.
Nathan Long, head of corporate pension research at Hargreaves Lansdown, said:
"We suspect the majority of smaller employers, already busy with the day-to-day running of their business, and simply keen to comply will use NEST [National Employment Savings Trust] rather than hunt out an alternative pension provider."
The report also highlighted the risk that people would be disappointed with their pensions if they continued to pay minimum contribution rates, and proposed a timetable to clarify how smaller pots are to be treated.
In addition, the DWP has yet to decide on how it will restrict charges that providers can levy. The PAC said the department should ensure that scheme regulation, charge caps and disclosure requirements cover all relevant costs to customers and ensure charges remain low by international benchmarks.
Meg Hillier, chair of the PAC, said today: "The Department for Work and Pensions must watch and learn from the experience of small employers and ensure easy-to-use tools are in place to support them.
"We will be following the department's progress closely over the next 12 months and expect it to respond effectively to the recommendations detailed in our report as the roll-out proceeds."
According to the committee, the Pensions Regulator (TPR) does not yet have access to real-time information that would help the roll-out to smaller employers and said TPR should develop a real-time information (RTI) feed from HMRC by July 2016.
RTI is a system where employers and pension firms provide information on tax and deductions to HMRC at the time payments are made, as opposed to reporting them all at the end of the year.
Another issue raised concerns NEST, who was set up with a loan of £387m from the DWP. NEST does not know when it will pay back its loan, or how much this will cost taxpayers.
Morten Nilsson, CEO of NOW: Pensions, said: "NEST has a huge commercial advantage in this market but there is growing concern that its business model is unsustainable. So far its loan totals £387m and this will increase over the lifetime of the programme. This is a substantial burden on the taxpayer and the PAC is right to demand clarity over when it will be repaid."
NEST's executive director of strategy Will Sandbrook said: "We are confident, as is the DWP, that the loan will be repaid in full and NEST will be delivered at nil cost to the taxpayer."