Technology company Fluidata has said simplicity and transparency of pension arrangements and fees are key to smaller employers navigating auto-enrolment successfully, as it struggled to see value in private providers.
Concerns have been raised that the number of employers going through auto-enrolment over the next few years will lead to a strain on capacity within the industry and the willingness of private providers to take on small and medium-sized employers.
We’re going to get more people joining the fund as we go so we kept it simple
Nigel Sanders
But Fluidata, an SME with 64 employees, set up a pension arrangement with Nest in 2012, four years before its staging date in April 2016. Nigel Sanders, finance director at the company, said they looked at private providers but they were not comfortable with fees.
“It seemed like there were a lot of fees that could come and bite you. I really liked the simplicity and openness of Nest,” he said.
The members of the scheme contribute 2 per cent of basic pay to their salary, while the company pays 6 per cent. Sanders said the company plans to offer more options in the future.
However, industry experts have said the Department for Work and Pensions’ announcement last week on capping charges at 0.75 per cent for auto-enrolment schemes may mean private providers offer clearer charging and better value structures for smaller employers, especially those with professional workforces.
“Each provider will price the scheme on its own merits,” said Saq Hussain, head of DC consulting in the north at PwC. “[Following the announcement] a lot of the charges are going to be very clear… If you think about the provider’s perspective they want fewer pots with more money going in.”
Simplicity key for growing company
Fluidata has 64 employees, with 44 currently enrolled in the scheme. Employees are offered the pension benefit after a probationary period and 80 per cent of all eligible employees have enrolled in the scheme.
Sanders said the ease of enrolling people and the large number of other employers using it made Nest the right choice for its growing workforce.
“[The company is] growing 40 per cent¹ year-on-year,” he said. “We’re going to get more people joining the fund as we go so we kept it simple.”
The average age within the company is 29, which presented a potential challenge with engagement. The company stressed the importance of starting saving early to its members and arranged for a presentation from Nest to educate its members on the need to save for retirement.
Some experts have said the so-called capacity crunch may give smaller employers good reason to enrol early. “If you’re a small employer your biggest hurdle is whether a provider will give you the most attractive terms; you’re more likely to get that earlier rather that later,” said Martin Freeman, director at JLT Employee Benefits.
He added. “For small employers, access to competitive providers is the main issue." The assessment and processing projects may be more straightforward with small schemes, said Freeman.
“If you have 100 employees you’re probably hiring one or two people a month,” added Freeman. “The one-off exercise isn’t overly frightening and the ongoing process isn’t too difficult.”
¹In the original version of this article, Fluidata's finance director Nigel Sanders is misquoted as saying the company was growing 14 per cent year-on-year, when in fact he said 40 per cent.
