Nigel Bolton: How will the auto-enrolment ‘capacity crunch’ affect medium to large employers?

This year sees the first big test for auto-enrolment.

During its first 14 months, auto-enrolment saw more than 3,000 of the UK’s largest employers reach their staging date.

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However, in the first six months of 2014, nearly 30,000 employers will reach their staging date, which has led to concerns about a ‘capacity crunch’.

Research conducted  by financial research organisation Defaqto on behalf of Now: Pensions, published in January, suggests 55% of consultants and advisers are concerned about their ability to service organisations that are due to stage between April and June 2014.

The industry estimates pension providers can write about 2,100 new pension plans each month and although there are now more than 70 master trust arrangements available for employers to choose from, there is still a big shortfall in capacity.

All employers that have already staged acknowledge that the process was far more difficult than they initially envisaged, and organisations should not be complacent, because 2014 has implications as well.

Towers Watson’s Benefits health check survey, published in February, concluded that 16% of staged employers are already planning to switch their defined contribution pension provider. It could be said they plan to do so because their provider is not meeting their administration needs. 

These employers may indeed need to review the new technical solutions that have been launched for dealing with auto-enrolment compliance.

Some sections of the pensions and payroll industry were slow to develop robust systems, but as new systems offering complete end-to-end solutions are rolled out, larger organisations may be tempted to assess how their current arrangements compare. Many of these systems offer potential savings in HR time and cost within areas such as communications and cleansing data.  

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Large and medium-sized employers also need to keep an eye on government actions around auto-enrolment because, as of April 2014, we will already have had two waves of amendments to the initial regulations.

Nigel Bolton is head of pensions at law firm Irwin Mitchell