The regular-premium personal pension is dead. Long live the SME group pension. Such is the rallying cry of Paradigm pensions partner Steve Bee to the legions of IFAs facing a twin-pronged attack on a key part of their business from auto-enrolment and the retail distribution review.
Whether or not it is the pensions misselling review, stakeholder, the RDR or auto-enrolment that has dealt the fatal blow, few would disagree that the private personal pension is in retreat.
Bee says: “The personal pension market of the last 20 to 30 years will not work when virtually everybody you meet is either a scheme member or an opt-out. What IFA is going to want a client that has turned down an employer contribution into a scheme?”
But rather than retreat into their shells, Bee believes he has found a way for IFAs to reshape their businesses to take advantage of the unique opportunity presented by auto-enrolment, when more than 1.2 million employers will be required to set up and administer schemes that embrace every eligible employer and, crucially, be able to prove to the Pensions Regulator that they have done so by the book.
Bee’s proposition, offered through the Jargon Free Pensions brand, includes an online service facilitated in partnership with Staffcare that links payroll with pension scheme data in a way that creates a compliance trail to show every employee’s eligibility for auto-enrolment for every monthly pay run.
The service also includes a total reward capability that allows employees to select salary exchange options.
To become a participating adviser, IFAs have to pay a £450-a-month fee. Employers can opt to pay £3 a month per employee for the service, with IFAs getting £1 of that. Advisers can also charge a consultancy fee for set-up and servicing the arrangement.
Critics might argue that Bee is overstating the demand for compliance services from employers, whether currently offering qualifying pension schemes to all staff or not.
’There will be a rush of people who will need help when the duties finally come in. I can-not see how the industry can serve the needs of so many employers. I am urging people to start today to know they are compliant’
But Whiteleaf Financial managing director Darius Paine says employers are underestimating the challenge that auto-enrolment will present and IFAs are in turn underestimating the opportunity that presents.
Paine says: “It is not just a question of recording eligible jobholders. It is also monitoring non-pension scheme members and recording whether they have become eligible, whether by age or salary. It does this every time an employer runs a monthly or weekly payroll and creates a trail. Bee has created a system that allows payroll, HR and the pension scheme to talk to each other through Jargon Free Pensions, allowing all the record-keeping and compliance to be done instantly. This is the most fantastic opportunity IFAs will ever come across and he has created an incredibly powerful tool to meet it.”
But with the Pensions Regulator having perhaps 750,000 small and micro employers to worry about, surely those who have shown willing and set up a scheme or enrolled staff into Nest will be left alone. With TPR more concerned with the perhaps hundreds of thousands of employers who try to avoid setting up schemes altogether, why would such an employer with 50 employees want to spend an extra £1,800 a year plus the IFA’s consultancy fee just in case they make a mistake in their auto-enrolment procedures?
Paine says: “Yes, TPR may start with the micros but what happens four or five years down the line when they have done all them and they ask to see the employer’s records to show it has complied?”
So, with the staging dates for automatic enrolment duties for the majority of small employers only going live in 2014 and 2015, why should these firms want to pay for these services now?
Bee says: “There will be a rush of people who will need help when the duties finally come in. I cannot see how the industry can serve the needs of so many employers. I am urging people to start today to know they are compliant.”
For Paine, the answer as to why now is even more straightforward. He says: “Because it will save them money. If the system is presented correctly to employers, it comes in at no cost. For employers that are starting to adjust future salary increases to fund their employer contributions, it allows employees to do salary sacrifice, every time they do so it saves the employer NI contributions and because it generates total reward statements, employees see the totality of their benefits.”
Salary exchange for childcare vouchers and bike-to-work schemes also reduce NI for employers adopting the proposition.
But not everybody is convinced Jargon Free Pensions will take the market by storm.
Surf & Consult director Tim Gillingham, who advises group pension providers, believes that while Bee may have an open field in which to play at present, competition is just around the corner.
Gillingham says: “What Steve Bee is doing is quite revolutionary but it is also quite expensive and it will be competing with advisers and providers. Providers are currently thinking about what they can do on auto enrolment for small employers. At £36 per year per employee, it costs a lot and there is the adviser’s income to be added on top of that. This is a service that either providers or payroll and accountants will look to fulfill.”
Paine’s firm has several customers going live with Jargon Free Pensions in the coming months but it is already active in the employee benefits market. As to whether the proposition will succeed in capturing the imagination of a large number of wealth management IFAs looking to fill the hole left by the disappearance of regular-premium personal pension business remains to be seen.
Gillingham predicts it is more likely that other trends will develop from auto-enrolment that will see IFAs continuing to do what they have done in the past.
He says: “There will still be a market for wealth management and we will see a two-way relationship whereby wealth managers pass on their potential corporate clients to corporate businesses and the corporates engage the wealth managers in the provision of onsite individual advice and helping clients through enhanced annuities and other processes.”
But Bee remains adamant that by adhering to the simple per member charging structure, he has created something that breaks through the barriers that have previously stopped smaller IFAs offering the sorts of services employee benefits consultants provide even to micro-employers. He says: “We have structured this so that it can be installed for nothing. That is what will break it into the SME market.”