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Jelf Employee Benefits : a perfect pension storm predicted for 2013

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Auto-Enrolment (AE) will continue to dominate the UK pensions landscape for the forthcoming year, according to Jelf Employee Benefits. The company expects that the entire pensions industry’s resources will be stretched to, or beyond, capacity in dealing with AE planning for SMEs given the late notification about the final AE legislation; the wider uptake of pensions across the board; and the impact of the Retail Distribution Review’s on the industry

Steve Herbert, Head of Benefits Strategy at Jelf Employee Benefits said: “The pensions industry has a lot on its plate in 2013 and although Auto-enrolment (AE) began in earnest in September 2012, I believe we’ve only just touched the tip of the iceberg. Many of the larger employers already had some pensions experience – but we are about to head into unchartered territory with many smaller enterprises. We believe a perfect pensions storm could be brewing.”

Jelf Employee Benefits’ DC Pensions Predictions for 2013:

– Increased Auto-Enrolment Activity:
2013 is likely to see the UK’s SME community finally taking serious action to prepare and implement Auto-Enrolment. Many SMEs enrol in 2013, or early 2014, so with only a matter of months left to prepare, employer activity will suddenly increase significantly, particularly given the potential penalties for non-compliance with AE duties. The legislation really is very complex and challenging, even for employers who have previously engaged with company-supported pensions, so it’s likely that most employers will be seeking professional assistance in this area. Which leads us to the second point.

– Industry Capacity:
The entire pensions industry is going to be stretched very thin for the next two years. With the final drafts of AE legislation requirements taking place very late in the day, and thousands of employers (not to mention millions of employees) engaging with pensions at a much higher level than before, the industry will be working flat-out to ensure that existing customers and clients are in a position to comply with AE duties. This will be an unprecedented spike in activity for the pensions industry, which will create a major capacity problem at just the point when UK employers need help the most. And this will not be helped by…

– The Retail Distribution Review (RDR):
The unfortunate timing of the RDR (1 January 2013) will mean that many SMEs who had yet to take action with regard to Auto-Enrolment will now be left with an additional cost for consultancy services. The FSA appear to have only recently decided that the proposed solution [to the removal of traditional factored commission] will not be allowed where this commission structure reduces the amount invested in a pension plan below the Auto-Enrolment minimum. And there are also questions about whether it could even work for higher levels of pensions contributions.

Steve Herbert, Head of Benefits Strategy at Jelf Employee Benefits said: “The recent tweaks to the RDR basis should have been made clearer much, much sooner. The pensions industry has spent millions of pounds, and thousands of hours, creating a new charging structure which is redundant before it even begins, and in doing so has not been able to commit as much time and expertise as would have been liked to help employers comply with Auto-Enrolment. Sadly the result is likely to see many SMEs defaulting to the lowest level of employer engagement with pensions, given that they will struggle to meet the AE costs in the current economic climate.”

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