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Navigating the perfect storm

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Scottish Life’s Jamie Clark reviews the impact of RDR and automatic enrolment on the corporate pensions market

It goes without saying that automatic enrolment and the RDR will have a major impact on the corporate pensions market. Taken together they will result in an unprecedented sea change in the way in which corporate pensions will be distributed in the future. We explored the issues at the Corporate Adviser summit by looking at what this may actually mean for providers and corporate advisers both now, and in the future. Whilst this raised some heated discussion around some of the finer detail, there was a sense of agreement that adviser and provider business models need to change.

Automatic enrolment will result in an explosion in the corporate market space. Instead of selling pensions to employers who want them, every employer will be required to have a pension scheme. But that’s not where we should be focusing our attention. The employer duties around automatic enrolment are complicated and extremely burdensome. So any solution must be based on helping employers comply with the new duties, rather than selling them a pension scheme. To be valued, that solution must cover all elements of the employer duties - the identification of employee type, the provision of a suitable default fund, providing an automatic enrolment system and providing an opt out process to name but a few.

That is why we, and every other serious provider in the market, are in the process of building systems that will ’do’ much, if not all, of the employer duties for the employer. Providers who are not committed to doing so may just as well close up shop. And corporate advisers who do not align their own propositions with automatic enrolment may struggle.

Under the RDR, consultancy charging means that advisers basically agree with employers what services they will provide and how much they will charge for those services. The cost can then either be paid by an explicit fee, or deducted from the members’ accounts, or a combination of both. Automatic enrolment allows advisers to align their proposition with the needs of employers. They can pick and choose what automatic enrolment services they want to provide (if any) and how they will charge for them. Employers who don’t want to be embroiled in administration (and let’s face it, who would?) will surely value a proposition that will take the automatic enrolment burden from them. Any gaps in the adviser proposition can potentially be taken care of by the pension provider. In some cases, the adviser and provider together will be able to provide a complete solution for employers.

There are of course some flies in the ointment. In RDR land, there remains some uncertainty over the FSA’s interpretation of ’independent’ and ’restricted’ advice. Then there’s the application or otherwise of VAT on product versus advice. With automatic enrolment, we have the Department for Work and Pensions talking about ’sectionalised schemes’ - ones which have lower contributions that the legislative minimum. And charges also seem to be flavour of the month - active member discounts in particular have taken another battering.

But despite all this, if we are to emerge safely from the automatic enrolment/RDR perfect storm then planning for it must start now. There’s no point treading water and hoping for rescue. We need to start building propositions that will fully engage with the overarching dual political imperatives of a fairer more transparent adviser remuneration structure and the need to get millions more people into pension saving. If we don’t, we risk further reputational risk and ultimately, unwelcome regulatory intervention. And if that happens, we could all be sunk.

Jamie Clark
Business Development Manager
Scottish Life

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