Auto-enrolment – ready for impact?

By Iain Chadwick The pensions landscape has undergone a major renaissance over the past two years; however, 6 April heralds changes, dubbed by Chancellor George Osborne as ‘the most far-reaching reform…of pensions since the regime was introduced in 1921’.

While auto-enrolment led the workplace pension revolution, widespread changes first announced in last year’s Budget and Queen’s Speech will take this transformation one step further.

So what are those changes and how can UK businesses ensure they are prepared? Below, we’ve highlighted the four most significant amendments you need to be aware of.

1. Charge capping of annual management charges (AMCs)

As of 6 April, all annual management charges (AMCs) will be capped at 0.75 per cent. For businesses and employers, this means that if your current scheme has annual charges above this, it will no longer qualify as an auto-enrolment pension.

With the average AMC in the UK currently at 0.8 per cent, there are many businesses that will need to review the schemes they have in place, even if they have been specifically selected for auto-enrolment.

2. Removal of member-borne commission

Also enforced today, no qualifying scheme can now contain a consultancy charge structure and by April 2016, this restriction will extend to member borne commission elements.

Previously, there had been a ban on commission paid to advisers on new group personal pensions and group stakeholder pensions, however, this goes a step further by removing every aspect of consultancy charging or commission remuneration from any auto-enrolment qualifying scheme.

The impact of this change on UK businesses could be substantial. Not only will employers need to review their existing schemes and change it if this is a feature, firms will now be required to pay an upfront fee for services which had previously been covered by the commission.

Although an April 2016 deadline seems quite distant, businesses should be aware that many providers will look to implement this change ahead of this date.

 3. The largest collection of businesses auto-enrolling 

Between today and January 2017, approximately 598,000 UK businesses will stage, representing the largest group of companies to auto-enrol to date. Unsurprisingly then, some have voiced concern about the industry’s ability to cope, not only with the sheer amount of auto-enrollers, but with re-enrollers and those reviewing their schemes due to the changes noted above.

Many companies have turned to IFAs and accountants for support, and while they can often provide assistance in aspects such as sourcing a scheme and conducting assessments, they are unlikely to be able to help with the day-to-day scheme administration and communication.

Further changes to pensions, such as the decision to extend ‘freedoms’ to people who have already bought an annuity from 2016 – announced the chancellor’s most recent budget – is welcomed. However, as options broaden, more opportunities for bad choices arise.

As auto-enrolment brings everyone into workplace pensions, it is now more important than ever for the Government to ensure companies are better educated so that they can support employees – faced with an ever-growing list of retirement options – to make that critical personal pensions decision.

Therefore, businesses should act now and ensure they are up to speed and considering more holistic support options.

4.The start of re-enrolment

It is fair to say that auto-enrolment staging only represents the tip of the iceberg for companies. For larger businesses, auto-enrolment began in October 2012, and with re-enrolment occurring every three years, these companies are now exploring the secondary market. This cycle will soon repeat for smaller firms.

The significant change that auto-enrolment presented two years ago meant that many companies scrambled just to get a qualifying auto-enrolment scheme in place to meet their staging date. Some will admit that not much thought was given to the implications and ongoing management of the selected scheme, the priority at that point being, just to stage without penalty from The Pensions Regulator.

Clearly, the pensions landscape has, and will continue to undergo a significant evolution however, by acting fast, businesses can ensure they receive the best support to facilitate a stress-fee process of implementation while achieving the best value for money.

For more information please contact us, or to download our information guide to re-enrolment visit 

Iain Chadwick is a consultancy director at leading, independent workplace pensions and employee benefits specialist Johnson Fleming.