Having braced themselves for a late spring and early summer that was supposed to stretch them to breaking point, pension providers and advisers are reporting an eerie silence. The phone is certainly ringing, but concerns are starting to grow that a fair number of employers who should have reached their staging dates have gone AWOL.
Alarm first emerged when Nest chief executive Tim Jones pointed out that neither his organisation, nor any of the big providers he had spoken to, had received quite the level of business their projections were telling them they should have.
Jones says: “So far it has been relatively quiet. And this is not just a Nest phenomenon. I have spoken to a few other significant providers and they agree that the April quarter has been has been quieter than they had expected it to be.
“We are not seeing the significant step-up that we would have expected had all those due to stage in April gone through. We are doing hundreds of employers a week but not thousands,” he says.
Jones’s warning seems to confirm fears that have always bubbled under – that employers would take heavy cajoling to get them over the finishing line. The conclusion Jones is drawing is a serious one. “Some people look to have gone through their staging date without having put a scheme in place,” he says.
It is a perspective shared by a number of big providers contacted by Corporate Adviser.
Aviva head of policy, corporate benefits John Lawson says: “I think we are already seeing employers miss their staging dates in significant numbers. We calculate each month the total number staging and the number of our clients who should be. Our projections show gaps are appearing between the numbers who have staged and those that we think should have, and those gaps are getting bigger every month.
“We are in contact with these employers but they are not telling us they are doing their pension with someone else. I think an increasing number are, like the rabbit in the headlights, simply not doing it.”
Jones believes postponement is a key reason for the lack of numbers.
“We have seen quite a few larger employers postpone. This is theoretical but we may see a significant number of the Aprils in July and the Mays in August and the Julys in October,” says Jones.
“So what we are doing is focusing on July to October when we think they will come on board.”
Jones adds that as auto-enrolment rolls out, schemes are less likely to have a pension scheme, so a greater proportion of them are expected to come to Nest.
“Over 70 per cent of the July stagers do not have a pension scheme in place at present, compared to just over 60 per cent of April stagers.”
Jones says Nest is expecting to get around 15,000 of the employers coming through in the April to July SME wave, but adds that the actual figure could be anywhere in a range between 7,000 and 20,000.
Chase de Vere proposition manager, AE Sean McSweeney concurs that tardy employers and postponement are at the root of the matter.
He says: “What we are finding consistently is that employers are getting into the process very late. We have also had employees, even smaller ones, with very complex arrangements. One employer with 3,000 staff had 40 different schemes. This sort of thing may have made the numbers smaller.”
McSweeney believes providers’ systems are now, after some notable early wobbles, finally up to snuff. Adviser capacity will not be an issue either, he says, adding that the weak link in the chain is employers’ attitude to the task.
“We see people all the time who think they can do it in a week. We are also seeing a lot of postponement. Last year it was seen as a negative thing to do. This year nobody really cares,” he says.
Standard Life head of corporate strategy and propositions Jamie Jenkins agrees. He says: “I am not sensing that the industry is faltering, rather that there is a concern around employers’ readiness.
“We are concerned that of the 5,000 or so who should have staged in April, not all have set up a pension scheme. They can defer, of course, but there is a concern that they have not done that first part, which is communicating with employees by April 1. There is a worrying gap.”
If employers are failing to stage in their droves, it is a reasonable assumption to say that many of them will be in breach of the law, even if they have ‘postponed’ the establishment of their scheme. It is highly unlikely that every scheme that is late has followed the correct procedure for postponement, which requires the employer to have written to employees within a month of its staging date, telling them it is postponing and their right to opt in. Furthermore, if employees do choose to opt in, employers must have a qualifying scheme in place for them to do so. Few close to auto-enrolment believe this will have happened in all cases.
McSweeney even reports early evidence of employers saying they will flout the rules because they see the regulator as a soft touch.
McSweeney believes the regulator needs to get tough on stragglers if it does not want to risks creating a mood of widespread civil disobedience.
“We have been calling for strong action from day one. For us a fine would have been very useful in getting people motivated. We have already had people saying to us ‘I didn’t do stakeholder and nobody bothered me over that, so I am not going to bother with auto-enrolment either,’”
Lawson says: “The big problem for the Regulator is that if you allow employers at this stage to get away with not complying on time you create a culture of disobedience. When you look back at stakeholder, when more than 70,000 employers ended up not bothering to set up a scheme, you have to consider the potential for widespread civil disobedience.
“It is incumbent on the regulator to show some teeth and start taking some action.”
Despite some breaches so far, the Pensions Regulator is yet to report having issued a fine. It had recorded 134 breaches of automatic enrolment duties but issued no fines by the end of January 2014. Enquiries by the regulator’s compliance and enforcement team have led to a series of informal actions, including 28 instances where instructions have been issued by telephone, email, letter or in person and the issuance of 101 warning letters, according to Freedom of Information Act responses.
Formal action had resulted in the issuance of four compliance notices and one unpaid contribution notice. By March 2013 one compliance notice had been issued and 34 warning letters. The Pensions Regulator has investigated 590 employers by the end of January 2014, up from 89 by the end of March 2013.
A spokesperson for TPR says: “Our research indicates that significant numbers of the medium employers staging in April and May expect to use their existing pension scheme for automatic enrolment.
“Our research has also shown that the majority of employers believe automatic enrolment is a ‘good idea’ for their workers. The regulator’s educate and enable approach has helped ensure that more than three million workers have already been automatically enrolled into a workplace pension. We have only used our statutory powers on a handful of occasions.
“Our message to medium employers is to act now as the clock is ticking. Those employers due to stage before August 2014 should now have in place a suitable pension provider and suitable payroll software. If they have not, then they need to act now to avoid the risk of failing to meet their deadline to comply and the possibility of enforcement action, including fines.”
But Lawson believes more resource needs to be put towards cracking the whip. Lawson says: “I believe TPR is under-resourced. It has been doing a great job with the resources it has, but it needs more resource and it needs it quickly.”
Jenkins says: “The regulator is in a tricky position. On the one hand it wants to be seen to be dishing out penalties, but it doesn’t want to make life difficult for people trying to do the right thing. So I think they will carry on being pragmatic.”
McSweeney believes another problem for TPR is that they do not know how many people have complied. He believes there is a misconception that simply nominating the employee representative to receive communications from the regulator counts as registration. “People are not aware they have got to do the online submission within four months after their staging date. What is surprising is that employers are happy to pay us to do this for them as they do not see it as straightforward. I think they are confused by the way this obligation has been communicated to them.”
TPR has a balance to strike, and with the election less than a year away, one would hope that there will be no pressure from Government to go soft on tens of thousands of small business owners. Calls for stronger action from the regulator are likely to grow, but at least all the stories of an industry creaking under the weight of a tsunami of new business look overcooked, for the moment at least.
As Jenkins says: “I wonder how many employers really understand what they have to do by their staging date. But being a pragmatist, if I were in the future looking back to the summer of 2014 and the only thing wrong was that people were late, but that opt-outs were low and the job was getting done, I would be pretty happy.”