Photo of Lee Hollingworth, Hymans RobertsonAuto-enrolment of employees into pension schemes in the UK
due to commence in 2012 is heading for a “car crash”, warns Lee
Hollingworth, head of defined contribution services at Hymans
Robertson. His warning follows a survey undertaken by the pensions
and benefits consulting firm of finance and human resources
directors at the UK’s largest employers – those with more than
5,000 employees.

The new pension regime requires all
employers to auto-enrol employees and make contributions to a
pension scheme on their behalf. In instances where employers do not
have their own pension scheme, a new national pension scheme – the
National Employment Savings Trust (NEST) – has been

Auto-enrolment will encompass all
workers who are at least 22 years old and have not yet reached
state pension age. There will also be a minimum earnings threshold
which is expected to be £7,475 ($12,000) a year.

In its survey, Hymans Robertson
found that 39% of those polled believe that preparation for
auto-enrolment will take less than six months, and 29% believe it
will take longer but less than 12 months. The recommended period
for preparation is 18 months, according to Hymans Robertson.

“To give some context to the scale
of the problem, in the first six months from October 2012, 600 of
the largest organisations in the UK will need to auto-enrol
employees and comply with the regime,” said Hollingworth.

“The fact that the vast majority of
decision makers at the UK’s largest employers grossly underestimate
how long it will take to get ready implies they plan to leave it to
the last minute, which means we are heading for a car crash.”

The 600 companies employ about a
third of the UK workforce.

“Leaving it too late will result in
huge problems for large companies,” said Hollingworth. “Failure to
prepare in time means companies will lose out on pricing when it
comes to pension provider selection as the provider market has a
finite capacity for dealing with new clients. At best this will
push up pricing, at worst it will leave many employers unable to
source a solution, meaning those who leave it latest will lose out

Continuing, he said that because
solution suppliers will probably become more selective, companies
with smaller investment pools are likely to suffer the most in
terms of expense and support with the enrolment process from
solution suppliers. This will push more companies towards NEST,
which in turn could put “significant and unexpected pressure” on
this scheme.

Implementation of auto-enrolment
will start in October 2012 with employers with more than 120,000
employees, continuing for employers of between 50,000 and 119,999 a
month later.

Following this, other employers
will be phased into the regime on a monthly basis. For example,
companies with 20,000 to 29,999 employees must be ready by February
2013; those with 6,000 to 9,999 employees by April 2013; those with
3,000 to 3,999 employees by July 2013; and those with 1,250 to
1,999 employees by September 2013.

By July 2014, all employers with
more than 50 employees are scheduled to have been phased in and by
September 2016 every employer in the UK should have been phased

According to the Association of
Consulting Actuaries, there are more than 1.2m smaller companies in
the UK of which some 200,000 have only one employee and 600,000
fewer than five employees.

Whether the auto-enrolment schedule
will be adhered to remains to be seen. Hollingworth warned that a
bottleneck created at the start of the enrolment process in 2012
could put plans to get employees of smaller companies automatically
enrolled in jeopardy.

“The demands of large employers could represent a serious risk
to NEST being able to deliver to its target market – smaller
employers,” Hollingworth said.