Clare Burnett

Auto-enrolment pension capacity crunch will cause "chaos" for businesses

A gathering ‘capacity crunch’ facing auto-enrolment (AE) business pension providers and independent advisers may soon create chaos for Yorkshire companies according to Leeds-based wealth management company Pearson Jones Plc.

They say the vast and accelerating amount of businesses due to be staged-in for AE in line with the Government regulations may lead to providers having to shut their doors due to over capacity and many independent advisers unable to cope with the volume of complex work.

The warning follows a new report issued by The Pensions Regulator (TPR) showing that around 3,670 companies, including those in Yorkshire, have been auto-enrolled in the last 15 months.

This is with about 2m workers choosing not to opt out and that, in line with the staging of AE introduction, about 4,000 medium-sized firms need to be auto-enrolled this month and February 2014.

Pearson Jones Plc, which is putting two additional advisers on implementing AE full time in 2014

Pearson Jones investment and deputy managing director, Peter Heckingbottom, says: “These figures indicate the scale of the challenge and potentially serious consequences for Yorkshire businesses.

“Other data confirms that about 12,000 firms have staging dates by May 2014 and that this will rise to 90,000 a month by the end of 2017 so the situation is not going to get easier.

“This has to be seen against a backdrop of anecdotal evidence within the pensions sector which suggests a number of AE providers are already struggling.

“There are reports of employees not receiving ‘welcome packs’ with opt-out forms until after payments have started to be taken due to administrative logjams.

“Introducing AE is a complex development. Some, mainly large, employers may be able to do with this in-house and use a state scheme, such as NEST, or their existing pension providers.

“Any employer unsure about any aspect of AE should seek advice immediately. The “capacity crunch” does not just apply to pension providers but also to advisers.

“If employers try to seek advice close to their staging date, they are likely to find very few advisers with the capacity to provide a comprehensive AE service.”

Peter Heckingbottom says that AE providers, including Scottish Life and Aviva, have already confirmed that they may eventually seek to close their books due to over capacity, although this had not been anticipated until 2015 at the earliest.

He adds: “Businesses will have the difficult task of complying with the AE regulations at a time of unprecedented demand for the services of pension providers and advisers.

“When you add in the fact that the Government is still considering the final rules, including a price cap, 2014 has potential to plunge the auto-enrolment programme into chaos.”

The report from TPR also reveals that, although 2.2m people have already signed up to a pension under AE, more than 3m are either too young, too old or do not earn enough to qualify.

Pearson Jones Plc, which also has offices in Sheffield, Reading and Bishop Auckland, has 123 staff. The company offers wealth management, pensions and employee benefits and tax and trusts planning and has total funds under management of more than £1.8bn.

The firm is among fewer than 600 financial advice businesses in the UK to be accredited Chartered Financial Planners by the Chartered Insurance Institute.

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