Fifth of smaller employers failing to prepare for AE

As the rollout of auto-enrolment reaches a peak this year, the industry has been seeking ways to streamline its offerings for smaller organisations in order to avoid a provider capacity crunch.

We have been preparing for the capacity crunch this summer and anecdotally, so far, for us, it has been quieter than expected

Tim Jones, Nest

The study, released this week by payroll and software provider Sage, surveyed more than 500 employers with up to 249 workers, of which 250 employers were eligible for auto-enrolment. It found 19 per cent of small employers were not preparing to implement their workplace duties. 

It also showed 17 per cent of those organisations surveyed, which had up to 249 employees, were worried that the size of their company would mean they would be frozen out of the most competitive deals. 

In addition, nearly half of businesses (47 per cent) were worried about the financial impact of the implementation and ongoing contributions (47 per cent), with a quarter of those expecting to have to pay for external support. 

Paul Leandro, partner at consultancy Barnett Waddingham, said he was not surprised by the number of small employers not currently preparing for auto-enrolment. He said providers had not experienced as many enquiries as they would have expected by this point in time. 

“The dam is yet to burst,” he said. “This would suggest companies are reneging on their duties, or they’re unaware.” 

The research found that the sectors least aware of their auto-enrolment staging dates were technology and telecoms (48 per cent), media (34 per cent) and legal (31 per cent). 

Tim Jones, chief executive officer at state-sponsored mastertrust Nest, said that its milestone of reaching 1m members, out of the total 3m now saving through auto-enrolment, showed the reform is off to a “good start”. 

But he added: “That said, we have been preparing for the capacity crunch this summer and anecdotally, so far, for us, it has been quieter than expected.” As of yet Nest has not seen evidence of a lack of compliance among employers. 

Good deals available

Consultants and providers have joined forces in tie-in deals aimed at smaller employers, but some in the industry have questioned whether this approach undermines the independence of those consultancies. 

Leandro said that if employers approach providers directly, they may have less chance of securing a competitive deal as some consultancies have pre-negotiated “slots” with providers. 

Lee Perkins, managing director for Sage's start-up and small business division in the UK and Ireland, said that while employers up to recently have been dealing directly with providers to implement schemes, there has been a shift among smaller organisations in terms of where they seek advice.

He said: "We are now seeing employers engaging more with [independent financial advisers]… to support them in preparing their business for automatic enrolment."

Martin Freeman, director at consultancy JLT Employee Benefits, agreed there had not been as many employers auto-enrolling compared with what earlier forecasts had anticipated. 

“We are seeing more and more employers coming to us for help at the 11th hour, very often after trying to sort things out themselves and getting into difficulties,” he said. “If everyone piles in at the last minute, then things could get quite tricky.” 

However, Freeman said there were no good reasons why smaller employers could not get competitive deals on their schemes, with the level of provider choice increasing further for those willing to pay above-minimum contributions. 

“The new-generation mastertrusts are high-quality schemes that charge 0.5 per cent or equivalent and accept smaller employers,” he said.

Freeman added that the government’s quality standards will help ensure employers consider costs and governance, adding:  “If the employer does not have a plan for looking at this information and considering it, then employees could blame them if something goes wrong."