The automatic enrolment market for advisers is changing rapidly. So if you are in it or contemplating getting into it, your top priority must be to get to grips with how it is changing. I recently chaired one of the Money Marketing auto-enrolment invitationals which was an eye-opener for me, not least because of the high level of adviser interest in the subject – more than earlier in the year and a lot more than in 2013.
Up until now, all auto-enrolment has been with larger employers. Advisers have learned about the key problems with employers who, by and large, were big enough to cope with the changes and introduce the new system. And they were mainly competent enough to either organise their own auto-enrol processes or sufficiently savvy to pay for professional advice.
Of course there were plenty of exceptions. Just because an organisation is big does not mean it is well organised, or even that it approaches such challenges as auto-enrolment in a spirit of integrity and open-mindedness. I distinctly recall some pensions advisers reporting the case (this is a true story) of a high pressure sales oriented employer to whom they had presented their auto-enrolment consultancy solution. The boss of this firm was adamant that none of his employees would join. And on being asked why, he replied with a smiley menace that is not easy to convey on paper: “Well, they wouldn’t if they wanted to keep their jobs, would they?” He then laughed off suggestions that the authorities might become mildly suspicious if several hundred of his employees miraculously decided to opt out of auto-enrolment in unison.
In fact the level of compliance has been remarkably high so far, according to The Pensions Regulator, with remarkably little enforcement activity. Perhaps the threat of enforcement is enough, or maybe it is just that the pensions industry has been engaging with what is naturally the most compliant part of the market. Even so it seems that about a quarter of employers have been staging late. A by-product of good employer compliance has been a low average opt-out rate of about 10 per cent so far.
The next stage – smaller employers
But now we are about to move into very different territory. The staging dates for smaller employers are now fast approaching, with a huge bulge between 2015 and 2018. Will they be as compliant? And will the opt-out rate be as low? One reason to be hopeful about the opt-out rate is there is not much difference in the social and economic profiles of large and small employers. The motivation to pay into the pension and not to opt-out should be about the same.
The difference will be the smaller employer environment – will it be encouraging and efficient or will it turn out to be a shambolic turn-off?
Another reason for optimism is the success of the major revolution to PAYE reporting by employers last year in the form of real time information. Did you hear of any significant complaints or mistakes by employers large or small? No, nor did I. So maybe there is cause for hope.
The main difference between auto-enrolment so far and the approaching years is relatively few smaller employers will want to pay for advice and assistance with auto-enrolment. They will want the slickest job for the least additional cost and preferably no extra cost.
The advice dilemma
Advisers will need to decide whether and how much they want to be involved. And even if they do decide to get involved, they will almost certainly want to choose solutions where they can leave it to the payroll organisation and the product provider to get on with process as seamlessly as possible and wholly automated. The premium will be primarily on the slickness of the relationship between those two components and helping sort out technical problems, like who is an eligible worker.
Employers will need quick, easy and scaleable solutions. For most SMEs the right choice will not be about fund selection, or bells and whistles. It might not greatly hinge on charges.
When choosing a provider, advisers will need to be clear about who is getting the admin right and who is not. That will be the crucial criterion in SME-land. Ask around in the market about which companies seem able to cope and which are in the wars.
The other issue is ensuring payroll providers are fully up to scratch when it comes to meshing with pension providers. Make sure your employers have one of the relatively few systems that does seem to work, like the up-to-date auto-enrol payroll software from Sage.
It is important to give good auto-enrolment recommendations. Advisers who get it wrong will lose time and goodwill clearing up the problems, in all likelihood for not much return. Advisers who get auto-enrolment right may move onto higher added value advice and services for senior executives, business owners, and people who have built significant pension savings.
Danby Bloch is editorial director of Taxbriefs Financial Publishing
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