The pensions market is heading for a “car crash” because the UK’s largest employers are grossly underestimating the amount of time required to prepare for automatically enrolling staff into workplace schemes, a consultancy has warned.
According to a survey undertaken among finance and HR director by pension and benefits consultants Hymans Robertson, a huge 68% believe it will take less than a year to get ready for auto-enrolment, while 39% expect it to take less than six months – despite recommendations that 18 months need to be put aside to sort the issue out.
Moreover, even though the deadline for large employers is October 2012, a worrying 25% were unaware of the cut-off point, with the figure jumping to 40% among finance directors.
Lee Hollingworth, the firm’s head of defined contributions, said that, to give some context to the scale of the problem, in the first six months from October 2012, 600 of the largest organisations in the UK (employing about a third of the UK workforce) would need to auto-enrol their staff and comply with the regime.
“The fact that the vast majority of decision-makers at the UK’s largest employers grossly underestimate how long it will take to get ready implies they plan to leave it to the last minute, which means we are heading for a car crash. Leaving it too late will result in huge problems for these large companies,” he added.
For example, because pension providers had only a finite capacity to take on new clients, laggards would inevitably end up getting either an expensive deal or no deal at all. Those unable to find a suitable offering on the open market would be forced towards NEST, which would in turn put “significant and unexpected pressure” on this scheme too.
“Further down the line, this could put plans to get the employees of smaller companies automatically enrolled in jeopardy. The demands of large employer could represent a serious risk to NEST being able to deliver to its target market – smaller employers,” Hollingworth warned.
But larger employers would also find that they needed to throw more resource at the project in order to avoid compliance issues and related penalties, which could end up expensive.
“Clearly the Department for Work and Pensions and the Pensions Regulator has more to do to make companies aware of the deadlines and what’s required for a successful implementation ahead of auto-enrolment,” Hollingworth said.
