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Ian McKenna: A fine way to speed up auto-enrolment plans

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It appears that even The Pensions Regulator may have woken up to the fact that auto-enrolment is not as easy as it has been telling everyone.

It was suggested last week that there are serious concerns that vast numbers of employers with 200 to 249 employees may not be adequately prepared to start staging next April.

This is, of course, wonderful news for the adviser community. But firms looking to capitalise on this opportunity need to make sure they have identified the right technology to facilitate auto-enrolment and move quickly to contact employers.

It should be noted that insurers are increasingly taking the position that employers who have not prepared in time should stand in line and pay the fine. The truth is, as anyone who is actively involved in auto-enrolment is well aware, there is a significant shortfall in capacity to process auto-enrolment relative to demand.

At the beginning of the year, Tower Watson predicted auto-enrolment capacity in the UK would run out in May and that by December, there would be a seven times shortfall of supply capable to match demand. That is before we even get into smaller enterprises, never mind the micro businesses that stage after the next election.

With the first fine for non-compliance issued recently, perhaps it is important to start communicating with employers on the size of fines they face. For example, a firm employing under 250 employees would face a fine of just £5,000 a day for non-compliance – which is only half the rate that can be levied on larger firms.   

The level of fines The Pensions Regulator can impose is enough to cause most company directors sleepless nights. An increasing number of providers are indicating they are unwilling to take on employers who have less than six months left until their staging date, so firms due to start the process in April do need to act very quickly now.

The combined effect of the RDR and the fiasco around consultancy charging creates a very different scenario to that which many advisers are used to. Historically, the approach of many advisers was effectively to remove problems from clients and make things operate with a minimum of disruption. Frequently advisers almost did too good a job to the degree that clients were not aware of the full extent of all that was being done for them.

Given the complexity of the auto-enrolment regime the reality is vast numbers of employers are going to need major help meeting their obligations. The key to this must be for advisers to identify which auto-enrolment software solutions are best placed to help clients’ various needs.

In so doing I believe it is really important for advisers to fully articulate the total complexities of the auto-enrolment process and all the employer will need to address on their own if they don’t take professional advice.

In a world where advisers are going to be negotiating fees with employers it is going to be really important to spell out in the greatest possible detail all the tasks that a company is faced with undertaking if they do not employ external assistance. It might be worth inviting employers to work out how much internal resource they will need to address each stage of the process.

Simply outlining to any employer thinking of managing their own auto-enrolment that they will need to identify their staging date; consider if there are benefits to taking advantage of postponement enrolment; review any existing scheme to identify if it is compliant or identify a new scheme; then scope scheme design and requirements will probably have many rapidly reconsidering. The above, in practice, represents just a fraction of the tasks that need to be carried out.

Other activities such as carrying out the workforce assessment, member categorisiation, defining contribution levels, conducting the auto-enrolment process itself as well as opt-outs, opt-ins and re-enrolment – not to mention leavers and joiners, managing member communications, record keeping, compliance and reporting duties – will clearly require considerable time and effort.

The above list is by no means exhaustive but at the same time should help focus the minds of anyone who might believe pension minister Steve Webb’s assurances that no one needs any help with auto-enrolment.

The right technology can vastly streamline many of these activities but trying to address them on paper formats will result in an almost endless pile of paper. One thing that has surprised me in recent months is how few adviser firms seem to have settled on their technology partners for auto-enrolment.   

To help advisers with this process F&TRC’s auto-enrolment and group personal pension/master trust comparisons tools are now available to advisers in Beta format from www.advisersoftware.com.

These tools consider a wide range of auto-enrolment software solutions from life offices and master trusts, as well as individual software suppliers. These tools are designed to help advisers match individual employer needs to the most suitable auto-enrolment and pensions solutions.

Auto-enrolment genuinely represents an enormous opportunity for advisers to grow their businesses based around a long-term revenue stream. Choosing the right technology around which to build these services will be crucial and any firms that have not already selected their technology partners should do so as a matter of urgency if they want to maximise the benefits to their firms and their clients.

Ian McKenna is director of the Finance & Technology Research Centre

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Dear Ian
    Judging from previous posts on this issue, it would seem that many employers will be on their own. It appears that there are significant numbers of advisers who are just not interested.

    I would guess that for the majority it will be the roll out for the smallest firms that will be of most relevance as few will be advising firms of over 200 employees.

    As far as the smaller firms are concerned it is the smaller IFAs who can well empathise with these. The main hope is that ‘the powers that be’ will see sense and exclude firms with less than 30 employees.

    On the other hand some advisers may well be busy advising these firms (or more accurately their employees) how to opt out on a rolling basis, by selecting NEST and setting up the necessary admin to achieve this. We are well aware that employers are not allowed to put their employees off, but advisers certainly can and it will not be a difficult task. Moreover in view of the expense and trouble we will be saving the employer, I don’t imagine there will be the least problem in asking them to get out their chequebooks. Value and cost effectiveness can be easily demonstrated.

    Anyway what has generally been overlooked is the major dichotomy. If you are advising the firm – they are the clients, therefore it is your duty to do your best for their financial interests. If it is the employees who hire you then the position is of course reversed.

  2. Maybe I am missing the point here…..and of course I only have 20 or so years of experience in this marketplace but,…how do you compliantly advise an employee of a company to reject an employer contribution into a pension scheme (of up to 8%) with charges of less than 0.5% pa into a fund that it currently producing returns in excess of 12%pa.

    Would love to see that suitability letter!

    NEST will not suit everyone but this legislation is not abut doing the best thing that an individual can do it is about elevating a large proportion of our population form retirement poverty and making there retirement more bearable. Maybe once they have egaged in this part of the process then they will pay someone to manage their funds appropriately and take some interest in pension planning.
    Currently we as advisers seem to have switched off nearly 10 million of the 29 million working population of this country we need to find a way to switch them back on not “get around the rules” and force teh governments hand to introduce complusion…because that is were this will end if we employ the tatics you speak of.

  3. Both NOW Pensions and The People’s Pension have signicant capacity and have even been accepting employers who have been turned away by others just a few weeks before their staging date.

    This capacity crunch myth has been created by insurers who are cherry picking lucrative employers and by NEST who want to frighten employers into going to them months ahead of schedule. Advisers should not be fearful of any crunch.

  4. @ Steve Brice

    Ah, assumptions again. I was referring to auto enrolment not to pensions in general.

    Bear in mind that many smaller employers already have pensions in place for their employees. Speaking of my own situation (with also more than 20 years’ experience) single premium contributions are not recognised by AE. Nor do the current pensions have any of the admin hoop-la that AE imposes.

    Not to mention the fact that single premiums have always been a lower charge option and of course being unfettered by GPPs and AE employees can actually have a pension which is more tailored and suited to their individual needs and preferences – rather than the one size fits all approach being hawked at present.

    Moreover avoiding AE is a much more flexible option for small (and also some larger) firms. Business is not a certainty. AE contributions are a fixed cost. Pensions are part of the remuneration structure and can (and should) therefore form part of the annual remuneration review. If a firm does well they may (in discussion with the employee) pay more into pension. In bad times thy can safeguard the future of the firm first. How many firms have gone bust on account of pension promises they can’t keep?

    Also some employees may have perfectly satisfactory reasons for preferring to take all their remuneration as salary and pay the tax – which in turn should entitle them to a better state pension (as it did under SERPS).

    So please don’t assume and don’t take everything as black and white.

  5. If the crunch is a myth then why have there already been cass of The Peoples Pension and NOW pensions refusing to accept certain clients??

    If there is no crunch then why are the main pension providers gearing up their IT systems and in some cases their workforces ready for the early part of next year?

    If NEST is the only provider who HAS TO accept people then maybe they have a point!!

  6. @ Henry Katz
    “Bear in mind that many smaller employers already have pensions in place for their employees.”
    Last time I looked there were circa 1.2 million employers in the UK and 750,000 have nothing in place right now.
    They employ all of teh employees who get missed in todays pension regime and are teh very reason this legislation exists.
    Any existing scheme, by definition, will be with one of the many mainstream providers and accept single premiums simply and quickly. They also provide mearly 200 funds to choose from within their offerings and for the vast majority of clients that will probably tick all of the boxes.
    One size fits all is not a bad thing for this band of clients as well as they have avoided making financial decisions for the last few years…they are unlikely to make one anytime soon unless there is no decision…..

  7. .@ Steve Brice

    1. It’s Harry, not Henry

    2. You actually confirm some of my points.

    The number crunchers just don’t know about firms who don’t have ‘formal’ pensions in place, but just contribute single premiums to their employees own plans.

    And for your edification AE will NOT recognise single premiums at all. Only in addition to the mandatory regular premium, but not on their own – even if the singles are as much or greater than the mandatory regular premium.
    You also take no account of those who chose (as is their right) not to have a pension at all, believing that their taxes (particularly NI) are there for that purpose.

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