For most businesses turning down a new sale, order or contract would be pretty unusual, but that’s exactly what many pension providers are doing right now.
One of your duties as an employer is to select a pension scheme into which you will automatically enrol your members of staff who qualify. When it comes to choosing a Personal Pension or perhaps a Self-Invested Personal Pension (SIPP) for yourself, no provider would ever turn you down. But when it comes to Automatic Enrolment this isn’t true, and it could end up costing you and your staff.
Why are pension providers turning business down?
Principally it’s down to pension providers not being able to make schemes profitable.
Read our Automatic Enrolment guide for Employers
The minimum contributions start at just 2%; 1% from the employee and 1% from the employer, remember too, that it’s not even based on the full salary. These low contributions are a real challenge to the bottom lines of pension providers.
Add in the soon to be introduced charge cap, which will mean a maximum annual charge of 0.75% and it’s not hard to see why some pension providers are cherry-picking, the schemes they will accept.
We also have to factor in the potential for a ‘capacity crunch’ as smaller businesses come up to their Staging Date. As we move into 2015 and into 2016 tens of thousands of businesses will need to comply each month. This will put a tremendous strain on pension providers and they don’t want to take on more than they can handle.
Which pension providers are turning down business?
So, as strange as it sounds, many household names such as Aegon, Standard Life, Aviva and Friends Life to name just four, are already turning down business.
Others, such as Legal & General will consider taking schemes, which would otherwise be unprofitable, if the employer pays an annual fee.
So how will it cost your business money?
There are a number of reasons:
- Searching the market for a pension provider could push up the costs of employing an adviser
- If you take the DIY approach, this problem could lead to you taking far more time searching the market for a provider to accept your scheme
- One of the solutions to this problem is to pay more in to the scheme on behalf of your employees, or pay the additional fee charged by some pension providers; both will of course push up your costs
What can I do about it?
Employers have a number of options:
- Use NEST or one of the other schemes, such as the People’s Pension or NOW:Pensions, who will definitely take your pension. This will undoubtedly be a popular options, however each of these schemes have their disadvantages, especially when it comes to investment choice
- Use a knowledgeable adviser, who won’t waste their time and your fees, trying to place your pension scheme with the wrong pension provider
- Increase the amount you pay in to make the scheme and make it more attractive to pension providers
- Pay the annual fee or levy charged by some pension providers
- Start to plan early, this might help you overcome the ‘capacity crunch’ issue, but even then, if the scheme isn’t profitable for the pension provider, they are unlikely to accept it
How can Investment Sense help?
We know many employers are concerned about their Automatic Enrolment obligations and it now looks as though it will be even harder to choose the right pension for your staff.
We’ve developed a four stage process to ensure your business is compliant by your staging date and sticks to the rules in the months and years to come.
If you:
- Would like to know your staging date
- Have a question about Automatic Enrolment
- Would like to know how you can comply with the new rules
Then get in touch today, to put it bluntly, this problem isn’t going away and your staging date is only getting closer.
We’re here to help, call us on 0115 933 8433 or email info@investmentsense.co.uk
