Why a competitive AE market for smaller employers is crucial

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 1.8m 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 (1.2m) employ between one and four workers, 16 per cent (288,000) employ between five and nine workers, while 17 per cent (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 we conducted with 269 employers revealed two in three (66 per cent) don’t have an existing pension scheme.

They are also less likely to seek professional advice with only 6 per cent stating they will seek the help of a financial adviser.

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.

It is vital there is choice in the market for companies of all sizes. 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. 

Morten Nilsson is chief executive officer at Now Pensions