Financial Times: Auto Enrolment will reduce profitability, deter investors and stall mergers
The FT published an article on Sunday by Debbie Harrison – one of their pension experts – that shows that the mainstream press are beginning to wake up to the impact that auto-enrolment and NEST will have on UK employers. It’s well worth a read.
Auto Enrolment will cost employers £5.5bn a year
We don’t think that any of the statistics and research quoted in the article is scaremongering by any means. Those close to the government within the pension industry have long been saying that NEST and auto-enrolment will cost UK employers billions. Even the CBI reckon that it’s going to cost UK employers well over £5bn per annum when you take into account the additional cost of administering this pensions monster. It’ll hit the bottom line for employers and, according to the FT, could deter investors and stall merger activity. That should make a few Finance Directors sit up and take notice we suspect.
At 44 Financial we’ve talked to our clients for some time about the impact that auto enrolment will have on them – looking at the direct financial impact as well as the indirect internal admin costs. Pleasingly, most of our clients and contacts are unlikely to cut the existing level of contributions downwards to match the least that NEST requires.
Levelling down of contributions
However, there are many employers who have in place a pension plan that is far more generous than NEST – often as a result of the closure of a final salary pension scheme. Automatically enrolling employees into these plans, when they already been offered membership have decided not to join, would have major cost implications for some employers. Our work with not-for-profit and third sector employers is a good example of this as contribution rates tend to be in excess of NEST but pension take up very low.
Some industries such as retail are very likely to end up with a two tier pension provision with NEST as the basic offering and possibly a more generous contribution level after a period of service. This kind of strategy would make sure that scarce resources are used to reward those in the organisation that are making a difference in the long run. During the period of potentially high staff turnover the employer pays the statutory minimum.
What’s your NEST survival strategy?
In summary it’s a very good article bringing together what pensions professionals, including 44 Financial, have said for some time. This year really is the year when employers must start to look at their NEST survival strategy.
If your existing adviser remains silent on NEST and auto-enrolment and how it will impact your organisation 44 Financial would be delighted to help. We are currently offering the first consultation in our Benefits Roadmap at our own cost to the first 20 employers who contact us. The Benefits Roadmap will, among other things, look at the impact of NEST and auto-enrolment.
Auto-enrolment is the biggest threat facing the most businesses in the next 12-36 months. Doing nothing is not an option.
Email us now at talk2us@44financial.co.uk – what have you got to lose?