Auto enrolment – the importance of a competitive market for smaller employers

Morten Nilsson, CEO, NOW: Pensions

Auto enrolment has proven to be a big success. Millions of hitherto pension-less employees are now saving for their retirement and opt out rates are low. The hope is this will continue. However, this success has not been achieved easily. Despite having considerable in-house resource and being able to call upon the services of expert advisers and consultants, the large companies that have staged so far have had to learn fast.

With 1.8 million small and micro firms yet to stage, the biggest challenge for auto enrolment is still to come. It’s important to remember that so far, just 54,000 companies have undertaken auto enrolment.

Analysis from the Pensions Regulator shows that of the employers yet to stage, two thirds (1.2 million) employ between one and four workers while 16% (288,000) employ between five and nine workers and 17% (306,000) between 10 and 49 workers.

The needs of these smaller employers are fundamentally different to the larger organisations that have gone before them; they are going to need more support both with scheme set-up and on an ongoing basis.

Most of these small businesses have no experience of pensions. Research NOW: Pensions conducted with 269 employers revealed two in three (66%) don’t have an existing pension scheme. They are also less likely to seek professional advice with only 6% stating they will seek the help of a financial adviser for auto enrolment.

For many providers, the effort involved with administering these schemes won’t be worth it. Some will choose to withdraw from the market altogether, others will operate bespoke terms and opaque charging structures while others will underwrite schemes excluding many.

We remain committed to serving the entire market and recently launched a consultation to give smaller employers the opportunity to tell us exactly what they want and need from their auto enrolment provider. Using feedback from this consultation, we plan to enhance our proposition to specifically meet the needs of smaller firms.

We believe that it is vital that there is choice in the market for companies of all sizes. But, in order to keep our doors open for everyone it is necessary for us to introduce a monthly service charge for firms staging from 2016 onwards. The exact level of the charge will be determined following the conclusion of the consultation but it will be no more than £40 per employer per month.

A competitive and fair market, where employers have choice and commercial providers can run their businesses sustainably, is a healthy market. And a healthy market is essential if auto enrolment is to achieve its objectives.

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