Larger employers to shun Nest – Aon

Just 2 per cent of a sample of 110 Aon Hewitt clients intend to use Nest as their vehicle for auto-enrolment, and most intend to extend existing schemes to new joiners.

The survey, which covered 110 of Aon Hewitt’s clients across a broad range of industry sectors with sizes ranging from under 100 to over 30,000 employees, found that just two intended to use the scheme.

Most employers look unlikely to pass up on the opportunity to enrol new scheme members at the minimum 1 per cent employer contribution, even though they could take advantage of the fact that it could stay at that level until October 2016 at the very earliest.

The researchalso found that around 67 per cent of respondents have yet to consider the implementation challenges of auto-enrolment in any detail, with only 4 per cent likely to have made significant progress.

James Patten, benefits design specialist at Aon Hewitt, says: “Our survey confirms many of the views expressed to us in conversations with clients. In our experience relatively few organisations of more than around 100 employees are expecting to adopt Nest for auto-enrolment purposes.  It seems that, where possible, many companies prefer to use existing vehicles to limit the amount of change required.”
“From a contributions perspective, none of the organisations surveyed expects to reduce DC contribution rates for existing pension savers, although some have yet to reach a decision on this issue. More good news is that almost all respondents that have reached a decision on the matter expect to give new hires access to the same DC contribution structures as existing pension savers, as long as they are prepared to make the necessary member contributions to save for retirement.
“A significant majority of those that have reached a view on their likely contribution structure are intending to use their existing DC contribution scales for auto-enrolling all employees. This may again be to limit the amount of work required to prepare for auto-enrolment.  However, it could lead to the risk of substantially higher costs to the employer, compared with if they had set up an introductory contribution scale for those being auto-enrolled at the minimum employer contribution rate of 1 per cent of qualifying earnings – which will not increase before October 2016 at the earliest.
“Many employers with less than 3,000 employees will be hoping for a breather as a result of the revised staging dates expected to be confirmed by government in the New Year. For larger employers, 2012 will clearly be a very busy year in preparing for the significant implementation challenges.  Many may look to outsource much of this work in order that they can focus on broader business challenges in what will undoubtedly be a very difficult year.”
Nest chief executive, Tim Jones says: “We are already working with over 100 employers large and small who have signed up to use Nest early. We are getting great feedback from our early users – employers and members alike – who in particular praise Nest’s ease of use and clear communications. We expect to have between 2 – 5 million members by the end of staging and to work with hundreds of thousands of employers. Whilst research like this is always of interest, it doesn’t reflect our current experiences with employers.”