Third of employers planning to enrol employees into existing unbundled, trust-based schemes which will incur significant extra costs compared to other solutions available
Key findings of Hymans Robertson’s research among Finance and HR directors at the UK’s largest employers* include:
- 30% of Finance and HR directors in Britain’s largest companies are planning on using an unbundled, trust-based DC scheme for auto-enrolment
- Typically, these schemes are not the ideal solution to cope with a significant influx of new members and the increased administration and compliance requirements. This is likely to lead to a large increase in the cost of third-party administration and internal HR and payroll processing
- For large employers, ‘bundled’ solutions such as a contract-based scheme are a more efficient because providers have scale and are willing to take on more of the auto-enrolment compliance requirements at no cost. – 29% of large companies are planning on using this model
- Large companies that leave auto-enrolment planning too late may find that bundled schemes are unavailable or expensive as the provider market becomes more selective as demand increases
- Only 12% plan to use NEST as their scheme for auto-enrolment. This is unsurprising given NEST is aimed at smaller companies
- However, companies that are unable to secure a competitive offer for a bundled arrangement may be forced to turn to NEST – this could represent a risk to NEST being able to deliver to its target market of smaller employers further down the line
- 18% don’t know what type of scheme they will enrol employees into, a figure that increased to 25% amongst HR directors. With less than 18 months to go until employees start being enrolled, companies need to be making their preparations now
Research from Hymans Robertson, the independent pensions and benefits consultants, has found that one third of the UK’s largest employers are planning on using a type of pension scheme for auto-enrolment which is expensive and ill-suited to the large number of members that will be enrolled from October 2012 onwards.
The study, which canvassed the views of finance and HR directors at the UK’s largest employers (those with over 5,000 employees); found that 30% are expecting to use an unbundled pension scheme to comply with auto-enrolment. This is despite this type of scheme being unsuitable to meet the specific demands of auto-enrolment in many cases.
Commenting, Lee Hollingworth, Head of DC at Hymans Robertson, said:
“Most large companies typically have less than 30% of employees in a pension scheme at present. When auto-enrolment begins next year, that figure is likely to increase significantly, perhaps even double. Any company planning on still using their existing unbundled, trust-based scheme to cater for these new members is going to face a large increase in costs due to additional fees from their third party administration supplier and changes to internal systems and processes.
“For many large employers, bundled schemes will be much more appropriate, cheaper and more efficient to implement, but there is a drawback. 69% of large companies have said they intend to spend less than 12 months preparing for auto-enrolment. If that becomes a reality, then anyone choosing a bundled scheme is going to face a real fight to secure one at a good price, if at all – in other words, we could be facing a capacity crunch in the provider market. If that happens, large companies are going to be left with a choice between an expensive, ill-fitting unbundled, trust-based scheme, or NEST, which is really designed for small employers.”
“Employers should take the necessary steps now to ensure that they have the right information at their fingertips and do not just assume that they will roll their employees all into the same scheme. Employees also require adequate information and employers need to make sure they have the best choices available to them.
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