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Escalation on the cards for employee pensions

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26th Feb 2014
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Pensions minister Steve Webb (pictured, right) and numerous industry experts and providers at the Ceridian customer conference in London this week warned small businesses to start preparing early for auto enrolment to avoid the impending “capacity crunch”.

After 35,000 large corporations led the way into auto enrolment during 2013, the minister told the conference that in terms of employee numbers, “It’s 3m down and 7m to go.”

But he and other experts at the conference emphasised that the larger numbers of small companies staging employees into auto enrolment through 2014 and beyond will face a bigger challenge.

“Auto enrolment will be a commodity. Even smaller firms will have providers to choose from, but they’ll just get a package designed… to fulfil their legal duties.”

As well as signalling the imminent arrival of a cap on fees and more rigorous requirements for providers to be clear on their charges, the minister floated the idea of “auto escalation” once pensions were in place to ensure employees saved enough for their retirement.

He believed that escalation could be achieved without legislation and as with the success of the opt-out approach to auto enrolment (where roughly nine out of 10 employees don’t make the effort to bail out of the pension), much could be achieved by linking increases in contributions to pay rises. “I think we’ll get a long way with that approach,” he said.

Tim Smith, a lawyer with Eversheds at the event, explained the way the pensions world was evolving as auto enrolment came into play.

“Auto escalation will be the way things go,” he said. “As employers deal with auto enrolment, the focus is on whether people are saving enough. Automatic escalation would be a lighter touch than increasing the minimum contribution.”

According to Smith, employers would drive the escalation process rather than the government. “I think it’s common in the States. I’m sure escalation will be part of the answer.”

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By justsotax
26th Feb 2014 16:06

i never ceased to be amazed

by the distance between what a government thinks and what is reality...lets see...so 8% contribution per year....now I wonder what that equates to in pension over say a 45 year period after taking account of inflation....my guess is (and it is only a guess) for the 'normal' person earning 15-30k not a lot....given the type of pension provider...or what is offered I suspect that the growth of such a pot will be minimal....

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By ireallyshouldknowthisbut
26th Feb 2014 16:56

.

I think he meant 35,000 companies done (most of which would have a pension scheme anyway) and several million who haven't.

I am still waiting for the promised land:

 "Even smaller firms will have providers to choose from, but they’ll just get a package designed… to fulfil their legal duties"

Where are they then?

So far we have NEST and er that's it for the "under 5 employee" brigade which by volume is the largest part of the market and the one that wont move until beat with big sticks. 

 

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
27th Feb 2014 09:21

Crunch factors and budgeting

Ceridian’s Melanie Goddard led a workshop at the conference to help companies planning for staging dates during 2014 - which is likely to reach a figure of 35,000 during the year, with 12,000 slated for staging in July.

Goddard commented that the capacity crunch take effect with the pensions industry running at many times its normal capacity. “Some providers will only take you if you sign up six months head of your staging date and some are turning companies away.”

As pension providers get more picky, “Some companies may not get what they want as providers take a more prescriptive, cookie-cutter approach to auto enrolment. The days of flexible, bespoke solutions are pretty much behind us.”

After supporting 243 larger customers through auto enrolment during 2013, Ceridian has 591 who were due to stage this year. “There’s going to be a peak point where were dealing with three times the number of employers we have to support,” said Goddard.

Her message, like many at the conference, was “start preparing early” and consider all the various aspects of auto enrolment, from choosing a pensions provider, ensuring that systems for managing the auto enrolment opt ins and outs and contributions were in place as well as educating employees and keeping them informed about what was happening.

For finance, there is an additional concern according to Helen Close, an HR consultant who helped with the auto enrolment project at national plant hire group Hewden. She warned of the implications of the unexpectedly high levels of take (around 90% of all employees have stayed in schees that have launched so far).

When it came to budgeting our CEO and CFO suggested that 30% of employees would stay in. I did my own quick survey among staff and 87% said they planned to stay in, and 30% were interested in going for the highest level of contributrions. In the end we budgeted for 95% of employees at 4%.

Sticking to a budget for 30% when the take up levels are that high could cause some financial issues, she added: “Get your budgeting right and err on the side of caution.”

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By justsotax
27th Feb 2014 11:46

its

 a shame a little more thought didn't go into this....I presume to auto opt in option was precisely there to create a large take up....really not rocket science!  and with pension providers being picky, with no doubt 'cheap' products being used for this scheme one wonders if there are any remote possibilities that a decent pension will be achieved by anyone but for those contributing significantly more than the standard, or those higher rate taxpayers....

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By GuestXXX
17th Mar 2015 16:13

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