Fewer medium-sized employers will be turned away by their existing pensions provider for auto-enrolment arrangements than their larger counterparts, according to one such provider, as experts disagree on how smaller companies will fare.
During the first year of auto-enrolment, some providers have refused to cover their clients’ lower-earning or more transient workers on the grounds of profitability – including Specsavers and more recently the care charity United Response.
The market is not experiencing the pressure on capacity that was predicted
John Lawson, head of policy at provider Aviva, said even though it had turned away a “handful” of employers so far, that number in future is expected to be lower, “if any at all”.
“The reason for that is when you get to the medium-sized employers they tend not to have big workforces of people who are, let’s say, near minimum wage,” he said. “The range of wages in medium-sized employers aren’t as extreme as they are in larger employers.” This will render average earnings more attractive overall.
Reduced buying power
But Paul Leandro, an associate at consultancy Barnett Waddingham, contested the idea that fewer employers would be turned away next year. He said providers are cherry-picking clients.
“The buying power of employers is reducing and it is getting harder to obtain competitive charges,” Leandro said.
He added that while many providers are largely happy to retain existing customers, some are refusing new entrants or accepting them on higher charges – and in a few cases are even reneging on agreed deals.
“Having previously agreed to take all employees, some providers are now backtracking or increasing charges,” he said.
Leandro said the consultancy has witnessed the capacity crunch in some quarters and warned employers to “book their slots with providers early to ensure they are not left in the cold”.
Provider Friends Life demands a minimum of eight weeks to prepare clients for staging and said thus far it had not turned away any employers.
Martin Palmer, head of corporate benefits marketing at the company, added that the reforms will affect the pension funds’ profiles and “as a result scheme terms may be impacted”.
“The market is not experiencing the pressure on capacity that was predicted and providers are keen to make staging as straightforward as possible,” he said.
But Sue Pemberton, senior benefit consultant, DC and wealth, at Buck Consultants, said it had witnessed an increase of cases in which auto-enrolment was being used as a "catalyst" by pension providers to review terms offered to existing clients.
She added: “With the potential introduction of a charge cap, and removal of active-member discounts, the options for providers to increase charges on less profitable schemes could be removed, and so I believe we will see an increasing number of clients with young, low-paid, transient staff being turned away by their existing providers."
Provider Zurich said it has already taken on a "large proportion" of its existing clients' wider staff populations and will be looking to refine the process to mitigate any capacity issues next year.
Dave Lowe, head of corporate propositions, UK life, said: "We are now looking ahead and are streamlining our propositional offer so that we can bring additional capacity to the market in 2014."
