2014 will be the year auto-enrolment reaches a much wider audience. Between April and July alone 30,000 more firms are due to meet these responsibilities.
While there is the opportunity for a three-month deferment, in practice any organisation in this group that has not made some progress towards addressing their auto enrolment obligations is likely to find it challenging to meet their commitments on time.
Much has been said about the “capacity crunch”, the point at which demand exceeds the industry’s capacity to process auto-enrolment. Many people actively involved in the sector believe this point has already been reached.
Further pressure is being caused by constant rumours that one or more of the major pension providers will withdraw from the market for economic reasons.
There is a very real risk that this will happen if the proposed pension charges cap is set too low. Whilst allegations of excessive charging by the pensions industry make great headlines for tabloid newspapers, the reality is commercial organisations have a duty to their shareholders.
Pensions minister Steve Webb has a real challenge in finding the right balance. If a cap is imposed that is not economically viable I am in little doubt that one or more of the largest pension providers will simply walk away from the market, choosing to employ their capital more profitably elsewhere. However, we are not yet at this point and I believe there is significant confidence amongst insurers that a suitable equilibrium can be achieved.
Technology can play a crucial role in addressing the capacity crunch. I am seeing an increasing number of organisations creating very streamlined solutions with the objective of enabling large volumes of auto-enrolment cases to be transacted economically. Whilst many of these propositions are in their final development stage and will be rolled out shortly, one organisation that has already gone live is Standard Life which announced its “Good to go” proposition in December.
Its communications team deserves an award for the most eye-catching auto-enrolment headline of late, in promising a “six minute” auto-enrolment solution. As well as being a highly effective sound bite, I have seen first-hand that, if you really know what you are doing and have all the necessary information to hand, the initial scheme set up can be carried out in six minutes.
That said, it is important to stress that the six minute process represents only two stages in a five stage process, the other three stages need significant specialist knowledge, time and experience to carry out.
The Standard Life service leverages the substantial auto-enrolment capability the company has built in recent years to address the needs of larger schemes. Standard deserves to be applauded for what it has made and I plan to look at this service and others in more detail in the near future.
Such solutions are not only coming from life offices. Independent specialist software suppliers and corporate advice firms are also joining this market. In this context the acquisition by SimplyBiz of an 80 per cent stake in Staffcare just before Christmas looks a cunning move.
I am also very impressed by the Little Blue offering from Lorica. This is a cut down version of its Big Blue full employee benefits proposition which Lorica is making available to other advisers. My more detailed thoughts on the Lorica proposition will appear in the February issue of Money Marketing’s sister publication Corporate Adviser.
On a cautionary note several of the new streamlined offerings I have seen have not done enough to highlight at outset what they are not suitable for. In many instances if an employer fits a specific and defined set of criteria streamlined solutions have much to offer, however, trying to put through a scheme that does not quite fit could be a painful process.
Helping employers with their auto-enrolment obligations is a huge opportunity for advisers, it is also an area where a little knowledge can be a dangerous thing.
Companies looking to capitalise on this opportunity should ensure they have a clear understanding of the different factors that will make different suppliers suitable for different employers. Money Marketing invitationals, see aeinvitational.co.uk, present a great opportunity for advisers to increase their knowledge in this area.
I hear many advisers citing Nest as the answer for the vast majority of organisations. Whilst this is indeed intended to be Nest’s role it is important to understand that it is not going to be the easiest organisation to deal with. In practice it could do much more to help advisers and technology suppliers.
Organisations are telling me regularly of difficulties in trying to do business with Nest, especially its failure to provide streamlined ways to integrate with their systems. The need to comply with its public service obligation and a requirement to complement not compete is being used too frequently to justify not building additional services that could deliver far more streamlined services to employers, employees and advisers of all shapes and sizes.
The organisation’s consistent reluctance to have its offering benchmarked in detail, to help provide the market with a clear understanding of the limitations in its systems and support services is not helpful to many stakeholders.
Ironically, Nest could make its life much easier by being more transparent around such issues. If advisers were able to easily understand those circumstances where Nest is not the right option this might reduce the overall burden on the organisation. It is extremely unlikely that Nest will suffer from a shortage of customers over the next few years but it would be helpful if it were easier to understand where it is or is not the right solution.
Advisers who can build the right knowledge and understanding of how to help employers should be able to grow significant revenue in their businesses but it will be essential to have a clear knowledge of which systems are capable of providing various services.
Ian McKenna is director of the Finance & Technology Research Centre