The first organisations to auto-enrol their employees are now approaching the second anniversary of their staging date. Whilst those schemes are planning their birthday celebrations, their sponsoring employers may reflect on how far we have come since those heady days. Back then, we were all trying to get to grips with what a worker was, how postponement functioned and what communications we needed to deliver to employees and the employer. Almost every question involved a debate with lawyers and the Pensions Regulator. We acted quickly in building our own assessment tools because the payroll providers had yet to join the party. We did what we had to do to get through staging.
We did what was needed to be compliant. Sometimes, that meant minimising the disturbance to existing schemes and setting up new ones to host the auto-enrolment population. We told ourselves that we’d look at consolidating the schemes when we had more time.
Focussing on staging is a little like waiting for your baby to be born and planning only for the birth itself. At some point you realise that you’ve got years of nurturing ahead of you. Many of the solutions we that put in place in 2012 and 2013 need nurturing now.
The main reason I see employers wanting to take another look at their auto-enrolment environment is to do with processing. Some are finding that the pragmatic measures they took to deliver their solutions in time for the staging date are coming back to bite them in the form of time-consuming manual steps, such as reformatting and transferring files from one system to another. I think we may have erred towards quite a strict, fundamentalist interpretation of the regulations and erred on the side of caution when in any doubt. This could have been at the expense of simplicity.
The government introduced easements to the regulations in November 2013 and we have evolved practical and proportionate answers to most auto-enrolment conundrums. Payroll software has, in many cases, caught up and may now be on a 3rd or 4th release, which is when most software really starts to work.
Taken together, these developments mean that auto-enrolment doesn’t have to be hard work and people who are getting by on AE 1.0 may find the AE 2.0 is slicker and more user-friendly.
We are also seeing changes on the scheme provider and design side. Some providers had a better auto-enrolment experience than others and employers do not forget when a provider fails to live up to its promises. There were promises of handling all the processing that proved too optimistic when faced with the realities of weekly payrolls, high turnovers and fluctuating earnings.
We will also see employers faced with demands for payments if their business is not profitable for the provider in the form of a 0.75 per cent charge cap and the removal of AMDs. They may not view the prospect with unalloyed pleasure.
These drivers for employers to review their auto-enrolment arrangements are real and are leading to what some commentators are calling a “secondary” auto-enrolment market. I think this misses the point slightly. Auto-enrolment is not a separate end in itself. It a part of a joining process, which has some statutory requirements attached to it. It cannot have a separate market, nor is it something that will be finally resolved in a primary, secondary or tertiary phase.
I think we are seeing a more fundamental shift in the pensions market. It is a more fluid market, where employers will have the information to judge how well their scheme providers are performing and the means to change things if they want. It is a market where pricing will be more transparent and more expensive schemes will need to demonstrate the value they provide over cheaper, commoditised alternatives. It is a market where members will feel that they are saving real money that they can access and spend, which will lead to them questioning their employers and schemes if something doesn’t meet their expectations.
This means that processing, investments, communications should be constantly reviewed, upgraded and improved in a robust way. Schemes that are not winning business will see their existing business leak away through pot follows member. Employers will be ready to replace schemes in which the service is not up to scratch. This is not a secondary market, but a dynamic market. Providers that have relied on inertia to immunise them from the effects of poor service, will no longer have this protection, and this can only be to the benefit of employers and members.