Steve Watson, proposition and development director, Portus
Pensions Auto-Enrolment – a challenge and an opportunity for the legal sector
15 August 2013
12 December 2013
20 February 2014
3 March 2014
24 April 2014
23 February 2014
From an employer perspective, does your firm have a strategy for pension scheme auto-enrolment?
From an employer perspective, does your firm have a strategy for pension scheme auto-enrolment? If not and you have a staging date in 2014, we would recommend that you start planning now before the capacity storm hits the market.
From a commercial point of view, you might want to look at how your firm can assist the thousands of employers who will need some form of legal advice.
There is no doubt that auto-enrolment creates a challenge for employers both in terms of cost and resourcing; careful planning is required if regulatory requirements are to be met. However, the pensions industry, which needs to support employers, is presented with an arguably bigger challenge in terms of a major increase in demand.
Although a number of larger employers have already successfully staged, the first tidal wave of activity is expected to hit from April 2014 – less than eight months away.
The legal sector picture is no different. I would estimate that there are more than 9,000 firms that will only hit their staging dates at some point from April 2014 and will need to fight with the rest of UK Plc for capacity.
But it’s not all doom and gloom, unlike other industries the legal sector also has an opportunity. As part of their compliance with auto enrolment requirements, there are potentially 1.5 million employers who will need legal advice around issues such as realigning employment contracts and salary sacrifice arrangements.
As an employer, the panic starts setting in when we talk about employee numbers. In total there are an estimated 10.6 million employees (private and public sectors) that will need to be communicated with, enrolled into a pension scheme and potentially opted back out.
The following graph shows this activity according to scheduled staging dates in more detail; the data used is extrapolated from figures available from the Office of National Statistics and the Pensions Regulator – the volume could be bigger.
Graph 1 – Employee Numbers by Staging Date
Ironically however, the volume caused by employee numbers is not where the capacity issue is. As illustrated above, the greatest volume has already been processed and the industry has coped and is well placed to deal with the balance. The greatest volume has already been processed and the industry has coped and is well placed to deal with the balance.
This is where we need to remember that the volume so far, has been created by a relatively small number of companies; the earlier staging dates were for larger employers. The problem from here onwards, is that the balance of the anticipated employee volume is created by a much greater number of employers and this is where the capacity issue lies.
The crest of the employer wave
At employee level market capacity is easy to create. So long as each employer and provider has invested in the right software, the process of getting people into a pension scheme can be easily automated. One provider has been recently quoted as having increased capacity to be able to deal with 10 times normal volume. Technology plays a big part.
However whilst technology can respond to increased transactional demand at the employee level, it cannot on its own support the necessary consulting and implementation processes required by the employer. This part of the solution is heavily reliant on manpower and is where the industry is in danger of being drowned.
Looking at the figures illustrated in Graph 2, it is not hard to conclude that at particular points over the next 2 years, demand could very well exceed supply! Again, the legal sector is heavily weighted towards smaller practices who will all hit their staging dates at the anticipated peak activity times.
Graph 2 – Employer Numbers by Staging Dates to December 2014
At particular points over the next two years, demand could very well exceed supply. Again, the legal sector is heavily weighted towards smaller practices who will all hit their staging dates at the anticipated peak activity times.
However, this increase in demand pales into insignificance when we look at the potential volume between 2016 and 2018.
Graph 3 – Employer Numbers by Staging Dates from 2014
This might seem like a great opportunity; after all classic economic theory suggests that where demand is greater than supply, costs simply increase. However, the increased demand is for a relatively short period of time and can only be delivered by experienced staff. Pension providers are understandably loath to employ and train expensive people, only to make wholesale redundancies in 2018. The talk in the industry press is that providers might turn down new business if they are overwhelmed.
Without forward planning, the legal sector might also have similar capacity issues.
For further information please contact:
Portus Consulting & Portus Online
Direct line: 01926 331396