Research shows 2014 stagers face fundamental challenges in getting automatic enrolment right.
2014 employers have three fundamental gaps that could present challenges when meeting the new workplace pension requirements: an experience gap, a knowledge gap and a reality gap
New findings released today (28 Jan) by NEST show that employers staging in 2014 have three fundamental gaps to deal with as they meet their automatic enrolment challenges. Identified as the experience gap, knowledge gap and reality gap, NEST warns that, compared with their predecessors, second year employers may not be engaging enough with the detail of the reforms in order to successfully manage their duties.
The report, NEST Insight, commissioned by national not-for-profit pension scheme NEST, found that first year employers successfully navigated their way through the legislation thanks to their pensions experience and knowledge and by dedicating enough time to the project. However, many reported that implementing the duties took longer than expected. The research found that 20 per cent of first year employers had taken over 16 months to get ready, despite previously offering a pension scheme to at least some of their workers. Even with this level of preparedness and experience, 66 per cent found meeting their duties more difficult than anticipated.
Commenting on the findings, NEST chief executive Tim Jones said:
‘The success of automatic enrolment so far, with low opt-out rates and over 2.5 million workers automatically enrolled in a workplace pension, is due in large part to the efforts of first year employers. 2014 sees a new set of employers meeting their duties and they may find it more difficult than their predecessors. Our research suggests that 9 out of ten employers will expect help to fill any gaps in experience, expectations and knowledge.
‘Our research also suggests that intermediaries are gearing up to help, but it’s vital that providers, intermediaries and employers work together to ensure the next wave of employers can meet their duties successfully.’
NEST insightidentifies three gaps that employers may need help to tackle in 2014 and beyond:
The experience gap
Around a third of 2014 employers are likely to either not offer any pension scheme at all or just have a shell stakeholder scheme in place, while all 2013 employers had offered a pension. Only around half (52 per cent) said that they had a good understanding of pensions compared with 96 per cent of earlier stagers.
The knowledge gap
The research suggests that not only do some employers lack knowledge about pensions, but they haven’t engaged with the detail of the reforms – for example, only 53 per cent of employers staging between February and July 2014 are aware that they can postpone enrolments for up to 3 months, with only 12 per cent planning to do so. This compares with around half of 2013 stagers applying a waiting period. The employers NEST interviewed found it difficult to map out the process they intended to follow as they had limited knowledge of the details of the reforms.
The reality gap
Results from TPR’s latest tracking survey with employers found that only one in 10 employers staging in 2014 say they plan to leave it as late as possible to comply. This plan to be ahead of their deadline is at odds with the insight that only 23 per cent of employers staging between February and July 2014 have both confirmed the provider they’ll use and that they’ve done everything else they need to do in order to be ready to comply. This suggests that employers are not getting the message that they need to plan ahead, and are underestimating how much work is involved and how long implementation may take them.
NEST Insight in summary
A quiet welcome for automatic enrolment but challenges ahead, says NEST. Consumers have given a quiet welcome to automatic enrolment, with NEST reporting high awareness among the target market for automatic enrolment (86 per cent) and low opt-out rates (around 8 per cent on average at NEST, and around 10 per cent across the industry) after the first full year. NEST’s annual research report, NEST insight, finds that saving for retirement has gone up the priority list for consumers, rising to third place in 2013 from seventh place in 2011. The report also highlights challenges to come, including helping consumers bridge the gap between what they’re likely to want in retirement and their confidence in achieving those goals. Only 9 per cent of consumers say they are confident that their current and future saving will be enough to provide for them in retirement, compared to 14 per cent in 2011.
Whilst opt-out rates are low on average, they are not consistent across age groups. Rates can be around double the average level among people aged 50 and over. Employers report high awareness of their new legal duties, but research suggests that many are hazy on the detail of what they need to do. The NEST research has revealed gaps in the employer experience, for example between assumptions made before staging and the reality of the experience. Many employers who have now completed their implementation encountered unexpected challenges along the way. They were also surprised at how long it took and how many people across the business needed to be involved. Of those employers that have already staged, one fifth took over 16 months to prepare and 55 per cent reported having difficulty understanding the legalities of the reforms.
With up to 30,000 employers expected to stage in 2014 helping employers understand what they need to do to meet the requirements of the duties and ensuring they plan ahead will be a challenge, the report suggests. These employers have fewer resources than the larger employers who have staged up to now. Although research suggests awareness of the reforms is high, many employers haven’t started making plans around what they need to do and appear to underestimate how long it can take. Many also lack internal expertise and pensions knowledge. The research suggests there is a clear expectation of help being available to 2014 stagers from intermediaries and others.
Commenting on the findings, NEST chief executive Tim Jones said:‘It seems to be ‘so far so good’ for automatic enrolment for consumers, which is welcome news, but we are only at the start of a much longer journey and it’s clear there are challenges to come. For the longer term we all need to work harder to build confidence about pensions among consumers, and to make sure all age groups understand the benefits a workplace pension can bring. ‘With awareness of the reforms so high, it’s also clear that there will be an expectation among workers that their employer will put them in a workplace pension and be ready for the changes. ‘What’s less clear is how prepared the next waves of employers are. Our research suggests there are gaps in their knowledge, experience and preparedness. Getting automatic enrolment right is about more than putting a qualifying workplace pension in place. There’s a clear role for all of us in helping ensure the next stages of automatic enrolment are a success, with many employers reporting that they expect help from a number of sources. Key among those will be the intermediary sector.’