Pension Minister Dr Ros Altmann In their third update on the auto enrolment process, 'Automatic enrolment: Commentary and analysis April 2014 - March 2015'. The Pensions Regulator has revealed that they have underestimated the number of small and micro firms by approximately 500,000. It revealed that their previous estimates of 1.3 small and micro employers was incorrect and significantly lower than the revised figure of 1.8 million. The higher number of small and micro firms due to enrol looks to be a sign of a strengthening economy, as the Pensions Regulator revealed that the revised figure is down to an increase in businesses starting up and a lower number of closures.
Although potentially good news on the economic front, it does raise the question of capacity, as there will inevitably be a surge in demand for auto enrolment support from small and micro businesses due to stage that could seriously hit pension providers, pension advisors and business advisors and the Pensions Regulator. Such a surge in demand could see them struggle to cope with demand.
The original estimate of 1.3 million companies was based on data provided by the Centre for Economics and Business Research and also revealed that of the 1.3 million, over 500,000 will approach their accountant for auto enrolment advice whilst 360,000 will take another form of financial guidance. Now we know the truer figure to be closer to 1.8 million, this significant increase will almost certainly see a dramatic increase in the number of small and micro employers seeking the advice of their accountant or financial/pensions advisor. The situation looks even more serious when you consider that only 17,200 accountants (just 53% of the industry) plan to offer advice and support on auto enrolment. Not all financial advisors plan to offer support either, with 12,200 of companies planning to offer advice, which represents 84% of the industry.
If the revised figures are to be relied upon, 2017 will represent the peak of small and micro business enrolment, with 350,000 firm auto enrolling, compared to the previous peak estimated by the Pensions Regulator of 220,000 in 2016. This obviously represents a significant challenge to the pensions industry, and there will be a lot of pressure placed upon it. A 40% increase in small and micro businesses will place a strain on the industry, especially as auto enrolment will not be a priority for many new small and micro businesses who will be more concerned with getting their business up and running rather than spending time ensuring that they are complying with pensions regulation. Many may want to place it in the hands of an already busy financial advisor or accountant.
There was good news for the Pensions Regulator recently however this month. In their Annual Reports and Accounts 2014/15, it showed that they had hit 14 out of 17 of its key goals last year compared to just eight in the previous period. This was an impressive result, especially seeing the seismic changes that have affected the industry this year, namely pension freedoms which have added to the Pension Regulator's already busy schedule alongside auto enrolment and other issues.