How to beat the auto-enrolment capacity crunch

Why should employers think differently, especially if they have had a relationship with their current suppliers or administrators for some time? Sadly, current experience shows this reliance may not deliver the required or expected results.

It is now generally accepted that the UK pension industry will face capacity issues in delivering auto-enrolment.

Failing to engage with your current scheme suppliers and administrators from an early stage is a very risky scenario for employers. Being turned away by them when the time for delivery arrives and leaving no auto-enrolment option on the table creates additional costs, time and effort. 

Providers now look at the profitability of a potential scheme over the longer term much more closely than ever before. We have already seen evidence of many employers being turned away by their current scheme provider.

Many companies in this scenario may end up managing more than one scheme with more than one supplier or administrator, which creates significant additional work and costs.

Two or more schemes mean extra administration work as contributions are scheduled and paid to different sources. It begs the question: how will the employer's compliance with the reform's rules be monitored in this scenario?

Does this mean the employer will need to use more than one software package to help with the ongoing assessment requirements and communications, potentially doubling up on both cost and effort?

Also, many providers will not hold data relating to anything other than their own schemes. While this fact is understandable it does not help the employer, who is left with no option but to cope with a multi-scheme scenario and all the additional in-house administration that will be required.

This scenario highlights just one reason why employers could consider using standalone third-party software. It is also one of the reasons why the industry is seeing a resurgence of mastertrusts, which allow the employer to take more control of not only the structure, design and employee communications but also the scheme default investment strategy.

Where supply can meet demand, other delivery and process issues have made the process much more complicated than it should be. So far providers have had a take-it-or-leave-it approach to auto-enrolment. We need to push back and demand solutions that can meet minimum criteria, such as:

• coping with multiple pay reference periods;

• managing their opt-out processes effectively;

• flexibility when the employer is importing data for the assessment processes;

• dealing with multiple postponement periods for different categories of workers – an issue for payroll providers;

• integration with other arrangements such as legacy schemes or other provider’s systems;

• dealing with complicated or multiple contribution structures such as those required for TUPE-transferred staff or 'grandfathered' arrangements;

• offering adequate levels of security with their data transfer processes. 

This list of issues needs addressing urgently. Scheme professionals need to seek out the suppliers who can provide them with a full service that includes consultancy and auto-enrolment project management, while meeting all of the compliance and regulatory requirements.

Auto-enrolment is an issue that requires their immediate attention. Are we getting the message across as an industry? Are we offering fit-for-purpose answers? Time will tell but there are certainly early issues which are concerning.

Charles Gillespie is the head of corporate advice at Close Brothers Asset Management