Five years after launch the auto enrolment challenge is arguably getting bigger, not smaller says ITM client development manager, auto enrolment Caroline Parker
No one would argue that auto-enrolment hasn’t been a success so far. Whether its employer engagement, low opt outs or the standard of provider service, the efforts and results to date have been largely positive no matter which way you choose to measure progress. But with nearly 8 million workers from more than 640,000 employers now signed up, it would be dangerous to say the job is done.
In fact, some would argue that the real work has actually only just begun now that we’ve entered the final 12 months of staging dates for employers to comply with AE.
By the end of March 2017, a total of 7,657,000 eligible jobholders were reported as being automatically enrolled since the start of AE. In the next 12 months, an estimated further 250,000 employers will enrol eligible employees – a significant challenge in what is arguably a short space of time.
The scale of the challenge still to come from AE is highlighted by the activity of The Pensions Regulator. In the first quarter of this year alone, TPR issued more than 4,673 fixed penalty notices of £400 for non-compliance with AE responsibilities. Between April 2016 and March 2017 TPR used their formal powers on 50,068 occasions, an increase of 41,256 on the number of times powers were used in 2016.
Employers do have the right to a maximum postponement of three months following their staging date but we speak to employers every single week that have missed their staging date or have not issued their statutory communications as part of this. And if they miss their deadline by more than six weeks then this right is lost, meaning contributions will need to be backdated to the staging date. The threat of these costs makes it even more critical for firms to ensure they have robust software for assessment and communication if they are to keep pace with AE. This next phase in the AE timeline brings challenges not only for employers but for providers too, from large insurers through to the growing number of master trusts and everything in between. Payroll firms are also likely to face hurdles, along with advisers who operate in this area of the market.
The volume of employees that need to be enrolled during this last staging date will really put the best AE software, systems and processes to the test, with some providers having actually stepped back from this end of the market, citing either operational or financial challenges, or both. Those open for business will need to be ready and prepared to demonstrate their operational resilience during the staging process and beyond.
And just what happens after staging? Running processes and staying on top of compliance actually may be a bigger challenge for employers than staging itself. Personnel within HR and payroll can change frequently, training isn’t always passed on and breaches begin to occur. It’s also a time, when the adviser who was there at staging may step out of the AE process altogether, having earned their up-front fee. What is arguably required here is a bigger governance role to ensure that the quality of the scheme over the years to come does not deteriorate.
Maintaining quality will also be key for providers such as master trusts, particularly when it comes to systems and processes such as using data valuation tools to ensure scheme member information and contributions remain accurate over the years.
Aside from these employer compliance and software resilience, let’s not forget that the regulator is also turning its attention to governance in the defined contribution market, which has grown rapidly in the past five years. The regulator has already shown its teeth in this area of the market by handing out fines for poor governance practice concerning absent scheme returns and Chairman’s summaries – could this be a sign of things to come for the wider pensions landscape too?
On top of this the Department of Work and Pensions has also announced that it will be carrying out a review of AE, to measure progress so far. And with former pensions minister Richard Harrington having stated that ‘there is still significantly more work to do’ in order to further develop this ground-breaking policy, it looks as though further changes to auto-enrolment could be around the corner. It’s clear then that the work on AE is far from over but with a continued drive to keep standards high, the industry still has the power make AE a great success ultimately.