The first year of auto-enrolment has enjoyed low opt-out rates and relatively high levels of compliance. But what does this mean for group risk schemes? Hannah Uttley investigates the impact of AE on the group risk market.
Key drivers
Mercer employee benefits consultant Emma Roberts believes there have been three key drivers throughout AE that have been a deciding factor in whether companies have made changes to their group risk provision.
The first, she notes, is the state of employers’ current provision and the cost difference of providing risk benefits for pension members and removing those benefits. If that cost is significant, then employers may have made changes to their provision.
The overall strategic approach to auto-enrolment has also had a significant impact, Roberts adds.
“Where you’ve had companies making little change to their pension provision because it hasn’t been a huge issue and they’ve stuck with their existing contributions, we’ve seen very little change with their benefits provision. But where we’ve seen a two-tier strategy and companies have used NEST or one of the other master trust providers, or indeed are offering a lower level of contributions, then we have seen changes.”
Yet there is concern that many companies aren’t planning ahead enough to be able to review their risk benefits alongside auto-enrolment. This could also prove to be problematic for companies yet to approach their staging date. “I think the most interesting driver is probably how prepared clients have been in terms of the lead time. In some cases with AE, some clients have realised they’ve had very little time to make changes when they have got into engagement rather late so they’ve stuck with it as far as possible and just focused on compliance,” Roberts says.
Where pension schemes and risk benefits are connected, de-linking seems to be one of the most sensible options for employers going forward. While opt-out rates are currently low, re-enrolment – which will take place every three years – could cause issues for companies trying to track members linked to group risk schemes, as Canada Life legislation manager Howard Rayner explains.
“The best route, frankly, is to de-link risk benefits from the pension scheme because then you haven’t got all the problems of keeping track of membership changes, which could be problematic if there’s a discretionary entrant who might be required to be at work or give medical evidence to receive cover,” he says.
The most important bit of advice across the piece for employers is simple and resonates with what was recommended prior to AE: preparation is vital. Rayner adds that employers could go further to create a more comprehensive benefits offering than the bare bones pension scheme if they allow themselves sufficient time.
“If people are planning early, then they may think to do some more – it’s definitely an opportunity for people to have a review of their benefits. It just depends on whether they’re going to take that up or do the minimum to get auto-enrolment sorted, and that’s going to depend on the attitude of the employer,” he concludes.
