Auto-enrolment is a “ticking time bomb” that could leave 30,000 mid-sized firms with a big, costly mess to mop up, warned a benefits expert.
Companies falling into the 60 to 249 employee bracket have neither the time, money or resources of larger firms to tackle this major shake-up to pensions legislation, warned Michael Whitfield, chief executive at employee benefits firm Thomsons Online Benefits.
Yet, firms need to start planning today if they are going to meet the April 2014 deadline, when staging for mid-size organisations begins.
“My particular concern is that I can see that employers will do the wrong thing and it will take five, seven or 10 years to unravel and they will end up with a complex problem because they didn’t involve the right people. It doesn’t smell good to me, but we are hurtling towards this,” said Whitfield.
Simply establishing who needs to be signed up for auto-enrolment is devilishly complicated, and most firms will not readily have the information they need about employees to make that decision easily.
Whitfield laid the blame for this complexity at the hands of the Government. Rather than make contributions compulsory for all employees, the Government “typically fudged it”.
Instead, employees have the choice whether to opt out of the scheme, “increasing complexity tenfold,” warned Whitfield.
“It’s hard enough for us to get it right and we’re professionals. It’s not easy,” Whitfield noted.
Potentially, auto-enrolment is a positive step, girding employees of all ages to save for their retirement by making them contribute to a company pension scheme.
But just as Stakeholder pensions failed to ignite much interest, many people are equally baffled by auto-enrolment.
The danger is that unless their employers communicate the changes effectively, some individuals may choose to opt out when they should stay part of the scheme.
But firms seeking outside help to set up a pension scheme will also find the pool of expertise has diminished due to recent Financial Services Authority (FSA) changes under the Retail Distribution Review.
Financial advisers are now banned from making commission-based sales for pensions and other financial products, which means many advisors have shut up shop and companies will need to pay for advice upfront.
The costs could be prohibitive and companies will be split into the “haves”, which can afford advice and the “have nots” which lack the necessary funds, said Whitfield.
“The word on the street is it’s just chaos,” said Whitfield, who expected the Government to respond in the next few weeks with measures to help SMEs tackle auto-enrolment.