UK employers 'under-prepared' for auto-enrolment – Punter Southall
GLOBAL - Employers have failed to take the right steps to assess the true cost of auto-enrolment, according to the fourth annual survey of UK defined contribution schemes by pension consultancy Punter Southall.
More than half of respondents (55%) intend to keep their current contribution structure, although that falls short of regulatory minimum requirements, the survey finds.
Only 45% of companies can pinpoint the date when they have to comply with the new duties, even though they were surveyed before the government's decision to put back the staging date for small and medium-sized employers.
And just 5% intend to seriously look at using the state-designed vehicle for auto-enrolment, the National Employment Savings Trust (NEST).
This is down from 13% in last year's survey and comes as the UK-wide awareness-raising campaign is underway.
Alan Morahan, head of defined contribution consulting at Punter Southall, said: "It is alarming that companies believe they are prepared. Our findings suggest they are not as far down the line as they should be.
"These are responsible and committed employers, but this is complex new territory, and our research indicates they need support to navigate a course that is suitable for employer and employee.
"Employers need to be hands-on, not on auto-pilot. They know it is coming, but do they know how to adjust their contribution model, their communications and their understanding of the regulations to ensure they have in place something that is robust, resilient and fit-for-purpose?"
Other findings include that:
• Almost three-quarters of companies intend to undertake a pension review
• Employers considering offering alternatives to pension saving has dropped from 11% to just 3%
• 59% of employers with commission-based pension schemes are unaware of the impact of the Retail Distribution Review (RDR)
• 70% of employers do not get asked questions about the performance of the funds their pension scheme members are investing in
• 44% believe the majority of their employees do not understand investment fund names
• One-quarter of companies are willing to pay for improved pension communications
• 62% of companies do not review their pension scheme on an annual basis
The investment performance was voted to be most important in a pension scheme by the survey respondents, well ahead of contributions and scheme costs.
The 2012 survey paints a picture of uncertainty for what has long been billed as one of the biggest upheavals for the pensions industry.
The findings are given extra weight, as auto-enrolment becomes a reality in autumn 2012.
Despite extensive media coverage of the challenges facing pension schemes, 70% of employers say members do not ask about the impact this could have on their own savings.
Morahan added: "There is a lack of knowledge, understanding and preparedness, but this is not surprising, as we still wait for the final regulation."
Auto-enrolment begins with the biggest employers in October, with the smallest ones staggered until 2017.
The combination of auto-enrolment and RDR occurring at roughly the same time is a potentially toxic mix, which is likely to cause considerable strain in some sectors, according to Punter Southall.
Many firms have little or no experience of working on anything other than a commission basis, and adopting a new regime of fees and/or consultancy charges will be a challenge, it said.
More than 150 employers took part in the survey in November and December 2011, 10% of which were FTSE 250 companies across the industrial and occupational spectrum.
On a similar note, a survey by the JLT 250 Club has highlighted that, with less than a year to go, 31% of the 250 employer respondents do not know how they will comply with their auto-enrolment obligations.
Duncan Howorth, chief executive at JLT Benefit Solutions, said: "We recommend employers start planning for auto-enrolment at least 18 months before their staging date - when they will receive the first letter from the Pensions Regulator.
"Given that all 250 club members are large employers, such a high proportion of 'don't knows' is a cause for concern."
According to the survey, 36% of respondents plan to continue using their existing scheme to comply with their auto-enrolment obligations, while 23% see a role for NEST alongside their current scheme.
Only 4% expected to use NEST for all employees.