This article is a summary of a presentation given to the Friends of Automatic Enrolment on 19th June. The FAoE had been privileged to have Steve Webb present and engage fully with the audience. Unfortunately he just missed this presentation (!) but his DWP colleague was there throughout and took on board all the feedback from the discussion that followed.
It’s written by Ed Holt who is an independent IT consultant.
Setting the Scene
The AE market is no longer a series of (growing) bar chart columns – it is triangular! The diagram below shows a number of things:
- Market underpinned by DWP (AE Regulations) and tPR (education and enforcement) plus various other legal services
- Successful staging of 2012-13 cohort (green)
- ‘In progress’ for 2014 (amber – we wait to see the outcome)
- Massive SME population still to stage (1m +)
- Large percentage who use the HMRC Basic PAYE Tools for payroll (no supplier to support them)
- A ‘Supply Side’ that breaks down into Providers (supported by the Pension Playpen!) , Online AE Platforms, Payroll Providers and a broad category of Service Companies (accountants, payroll bureau, IFAs, EBCs – some of whom use the technology provided by the other categories)
(I know this is not a complete list – it is an exemplar – but please let me know if you’d like to be included).
Today’s market seems to be well supplied in 2014 and for 2015 the numbers of stagers is not particularly large in the scheme of things (c. 45,000). It is 2016 where the ‘capacity crunch’ may appear. We have to question who will want (and be able to afford) to process / support AE for the mass market of 1 million SMEs……….. most of whom will turn to their Accountant or Bookkeeper (validated by our research and that from Nest and tPR).
Scenario 1 – Optimistic
The diagram below shows a reasonably happy picture of supply being maintained. This is going to be especially true for the Provider community who are already being selective in the SME business they choose to take on – some will take a scheme of 5-10 lives IF the salaries and contributions justify, others are charging an Admin Fee if the contributions are too low, and others only looking at schemes above 30 members. This trend will continue and only a couple of major providers + the big Master Trusts will be taking on new business.
In terms of technology platforms, there will be some new entrants but some will stop pitching for new business on the grounds of cost or scale – the volumes will be too great and the processes not automated enough. Payrolls will have stepped up to the extent they intend to (most are not intending / able to support the entire AE process).
The accounting / bureau community will be ‘in the thick of it’ and those that are successful will be using technology to automate as much of the process as possible.
Scenario 2 – Pessimistic
Here the wheels have fallen off! Nest is the only ‘pension in town’ since they have to remain to meet their public service obligation. Now: Pensions and People’s Pension have decided they either have enough business or cannot afford to process the ‘micro’ (sub 10 employee) market. The platforms have gone away (for new business, they will still be supporting existing customers) and the bigger Service Companies have mostly given – but the poor local Accountant / Payroll bureau will be picking up the pieces. And the large ‘micro’ market that has no payroll supplier (because the use the HMRC Tools) has nowhere to turn.
Given that situation, with those users representing some 15-20% of the market, we will have a massive Market Failure.
Anticipating and Addressing the Challenge
The Friends of AE not only debated the worst case (looking at macro-economic factors like interest rates and political ones like change of government), more importantly it has started on a series of strategies to prevent the worst case. The AE Supplier Directory, Awareness Raising and Common Data Standards are just three of those initiatives.
Government Leadership Required
In the Q&A Steve Webb recognised the potential concern – and especially that around the HMRC tools users – and said his door was open to discuss the issues and how they might be addressed. The Industry, together with tPR and HMRC needs to take up that offer, and soon. 2014 will probably be OK, 2015 also, but for 2016 we need to Mind (and Prevent) the Gap.
This article first appeared on http://www.pensionplaypen.com