The detailed examination of auto-enrolment’s component parts in the build-up to last October appears to have missed out the crucial factor of provider capacity, finds Marek Handzel

Details matter. It was natural therefore, during the run-up to auto-enrolment, for there to be plenty of debate centred on opt-out rates, contribution levels and overly conservative default funds.

But perhaps such a focus on the minutiae meant that the bigger picture – whether the UK was actually ready to deal with the various elements that have to come together for auto-enrolment to be a success – was lost.
Questions over provider capacity were never at the forefront prior to October 2012. If anything, insurers were banging their drums over the danger of Nest or a similar low-cost operator sucking up the vast majority of new savers and leading to a chronic levelling down crisis.

Today however, over six months into auto-enrolment, there is growing talk of providers having to either turn employers away, raise prices, or limit support levels.

Towers Watson, it could be argued, raised the first alarm after finding some evidence to back up the speculation. It suggested that from May 2013, demand would effectively outstrip supply.

The company carried out some calculations at the start of the year based on provider data relating to the number of employers they expected to be able to handle in 2013, as well as their business expansion and recruitment plans.

By the end of the year, it said, “projects will be running at about seven times normal capacity”. The gap, it warned, was too large to ignore.

Already here

Another consultant, Barnett Waddingham, has already experienced delays and declining service standards from providers, which have caused some concern.

Barnett Waddingham partner in the employee benefits practice Mark Futcher says that the company has been heavily recruiting in order to deal with a larger client list.

“Every single one of our clients that we come across needs some sort of support. Auto-enrolment is a unique thing, it falls between several fields: pensions, HR, legal, finance - and everyone has got their view on it,” he says.

“The providers we’re talking to think that around June 2014 will probably be crunch time.”

In terms of moving contributions and managing data, Futcher says that most providers are confident that they have the systems to cope with higher information traffic. There may be some issues, he says, with a large number of employers trying to upload details into a provider’s record base at the same time at the end of the month, but such practical problems can be contained. Some providers for example, will simply ask for the data in raw form and upload it themselves to avoid any logjams.

The more significant problem, he believes, is with service. “The larger providers have in some cases handed over tools after some initial meetings and said ‘get on with it’, rather than carry on with a lot of the implementation hand-holding they may have done in the past,” he says. “They just don’t have the resources.”

And this potential drop in standards, says PMI technical consultant Tim Middleton could not come at a worse time.

“We will have a huge spike of people who will all be staging at the same time – smaller organisations with rather limited resources,” he says.

“They won’t have the money to spend on a traditional EBC or a corporate IFA and whatever support that will be out there will be spread very thinly indeed.

“It is a serious issue and has to be addressed quite urgently.”

Gearing up

Providers, in their defence, should not necessarily be accused of naivety or a lack of forward planning, says Standard Life head of workplace strategy Jamie Jenkins. But he concedes that Towers Watson has produced a “useful report”.

“They are right to raise the issue,” he concedes. “We are in a schedule, and if we do nothing and work the way we have been, then there probably wouldn’t be the capacity.”

“But Towers Watson didn’t fully take in the alterations that are taking place to change things,” he argues.

Plans to accommodate ever larger swathes of the working population have been under consideration for some time, he says. To that end, Standard Life attempted to ease fears in April by revealing that it had increased its ability to deal with new joiners from 4,000 to 60,000.

“We’re considerably upscaling our operational procedures to deal with auto-enrolment by using technology and giving employers the tools to carry out some of the work themselves,” he says.

These tools help with planning and modelling (such as eligible employee identification), and have enabled straight through online payment processing to be beefed up too. Jenkins stresses however, that a provider’s responsibility does not start and end with superior IT systems.

“The IT bit is one phase in the process. How to effectively support employers with the problems and questions they have is next, and we’re working hard on how to support them.”

Easing the burden

Fortunately, says Middleton, providers are not expected to provide advice across the board for employers whose budgets don’t stretch to separate consultancy.

“The Pensions Regulator is well aware of the problem and is taking steps to mitigate it,” he says. “They have held seminars with professional bodies whose members will be involved in implementation and they are asking what they can do to help when this tsunami of people will be trying to do this at the same time.”

The most obvious profession that could provide an advice lifeline for many smaller companies is, as Futcher points out, accountancy.

For its part, the PMI has initiated discussions with accountancy bodies with a view to setting up training programmes for their members.

“There has been a positive reaction,” says Middleton, “and the bodies have broadly agreed that their members are the ones who will be turned to, so it’s particularly important for them to be prepared.”

Nestling down

But even if the advice bit is covered off, the basic need of having a scheme to enrol into remains. This is where Nest, given its high profile and government backing, could come into difficulties.

Benefits solutions provider Benefex has predicted that Nest will come under extreme pressure, particularly as the scheme cannot turn down an employer’s request to join the scheme, even at very short notice. And Nest is not exactly sitting on its hands as the private sector vacuums up all the prize companies during the initial staging dates; a number of household names have already selected it as the most convenient and cost-efficient place to enrol many of their workers.

In response, Nest has issued strong assurances that it is prepared for a busy 2014, saying that it has enhanced its online offerings in an attempt to pre-empt large chunks of file exchanging.

Addressing an audience on 1 March at the Institute of Directors Conference, Nest’s CEO Tim Jones said that the pension scheme would provide an easy exchange of data for opt-outs, enrolment and contributions “using our new file transfer facility, meaning employers can fully integrate their day-to-day business with Nest into their back-office systems”.

“We provide clear instructions to help them to give us the right data in the right format and, if done, this preparation could streamline meeting automatic enrolment duties,” he added.

Cynics would perhaps ask whether Nest has been spooked by all the conjecture surrounding capacity. After all, as Middleton points out, the entire concept behind the nationwide scheme’s creation was a public service obligation to never turn an employer away. So surely capacity planning and worst-case scenarios should have been at the forefront of its development?

Nonetheless, it has taken additional action. And if Jones is right, then it’s that sort of detail that could prevent the industry becoming full to burst.

Marek Handzel is a freelance journalist

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