2015 is a landmark year for the auto enrolment process. The 3rd anniversary for early adopters means the first tranche of re-enrolment processes will begin. With this in mind I have been considering how the process has developed for larger companies and the issues facing the smaller companies reaching their statutory deadlines.
The Regulator has published statistics surrounding key auto enrolment goals. The opt out ratio expectation has been reduced from 30% to 15% based on the experience to date. We are also advised that 99% of Employers have managed the process without the need for intervention. The initial Regulator study suggested it had only exercised its enforcement powers in 14 instances. However, a subsequent report confirms that 160 employers have been issued with the fixed penalty notices. It is clear that the larger employers have engaged in the process and using the path of least resistance approach, the membership has increased. Without wanting to temper enthusiasm it was never likely that large organisations would pose significant auto enrolment issues. These businesses will have specialists to guide them through the process. In addition their workforce will in the majority already have had access to a suitable workplace pension vehicle.
The real challenge for the Regulator, and the industry as a whole, will be in managing the adoption of small/micro employers (with estimated numbers of over a million). With under 50,000 employers expected to be auto enrolled during 2015 many insurers have been unable to cope with the demand for new policies. However, 2015 is very much the calm before the storm with over 100,000 employers due to be enrolled in Q1 2016 and over 500,000 during 2016. These employers are unlikely to have a pension framework in place and will need real assistance from advisers to meet their obligations. I would be interested to see how the stats develop into 2016 and the challenges that are faced by the Regulator in enforcing the legislation.
There can be no doubt that auto enrolment has been significantly more successful that stakeholder in tackling workplace pension issues. The requirements have meant providers have reviewed offerings and legacy platforms have been replaced by new generation Master Trusts. The combination of DC Governance requirements and Auto Enrolment has worked well in galvanising providers to build offerings which are fit for purpose. The introduction of NEST, the entrance into the marketplace of NOW Pensions and new generation products offered by several large insurers have produced real benefits.
The final challenge for the industry is to make members engage not just with minimum contributions but with saving for their own circumstances. When the auto enrolment generation reaches retirement it is likely that minimum contributors will be sadly disappointed with the benefits on offer. The increased flexibility, tax incentives and reduced costs should be used to encourage members to make sufficient savings to fund a reasonably comfortable retirement. The first wave of auto enrolment legislation tackles the quantity issue in aiming to maximise retirement savers at a minimum contribution level. The DC Governance requirements look at the quality issue in making sure the vehicles are fit for purpose. The industry therefore has the responsibility of promoting the merits of the new system and to engage positively with savers to consider their options from inception.