Compliance concerns prompt employers to rethink AE providers

This is expected to increase as employers revisit their auto-enrolment decisions and review defined contribution arrangements. 

A significant number of large employers have issued invitations to tender around the market because their current provider has failed to deliver accuracy and timeliness through their administration systems, said Adrian Boulding, pensions strategy director at insurer Legal & General.

“[This is] worrying because these schemes are very unhappy,” said Boulding.

Sixteen per cent of employers are planning to switch their DC provider in the next three years, research by consultancy Towers Watson found, and 23 per cent have increased the level of focus on DC governance.

John Lawson, head of policy, corporate benefits at insurer Aviva, said some large employers have approached it because the compliance software used by those employers' current provider may only cover one scheme, which might only deliver pensions for just half of their workforce.   

“There definitely is a secondary market developing with compliance software, now that employers have had a year to look at how it works in practice,” said Lawson.

Getting value

Research released last year by employee benefits provider Benefex, found almost 30 per cent of organisations think they have the wrong auto-enrolment solution. 

Now Pensions has also been approached by employee benefits consultants on behalf of large corporate clients looking to make the switch, said chief executive officer Morten Nilsson.

“The way we think about it at our end is that perhaps some of the solutions that were built at that point were a bit overengineered,” said Nilsson.

These administration systems were built with the detail of auto-enrolment legislation in mind rather than building something that works in practice, he added.

Dale Critchley, technical reform manager at Friends Life, said he had seen some large tenders circulated but that it could just be part of a routine review of the scheme, which is typically carried out every three years by large employers as part of their governance structure.

Employers are now having to meet the real-time information requirements of HM Revenue & Customs, and with the retail distribution review the way they pay for financial advice has also changed.

"Most employers will pay fees rather than commission, they are going to have to pay fees to advisers to deliver analysis to the schemes, and also member communications are going to be a cost,” he said.

There have been a couple of situations where an employer has had to switch providers because its group personal pension will not handle the auto-enrolment of new workers, said Andy Cheseldine, partner at consultancy LCP.

“We are expecting more in future as some employers working on auto-enrolment now will worry about changing stuff later,” he said.

Schemes considering switching providers should first decide what level of service they want, including the amount of help with auto-enrolment assessment and member communications, said Cheseldine.

After choosing a provider, a scheme would then need to set up the correct level of member contribution with the new provider. The employer also needs to carry out effective member communications detailing the contribution structure, he added.