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John Lawson: Keeping SME clients safe from The Pensions Regulator

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If 2015 was the year that saw demand for retirement advice scale new heights, is 2016 set to become the year advisers are inundated with advice requests from small businesses?

That is exactly what the findings of recent research we carried out point towards. In fact, a third of advisers see automatic enrolment as one of their biggest business opportunities this year and over half have already seen a rise in demand for advice and information from SMEs.

Up until now, auto-enrolment has focused on larger employers that already had relationships with specialist corporate IFAs or employee benefit consultancies. But most of the near half a million employers due to enrol this year are new to the world of workplace pensions, employee assessment and ensuring payroll deductions meet minimum standards.

Advisers’ key concerns relate to advising on payroll, data and process management, as well as communications and compliance. However, a lot of the heavy lifting in these areas will be done by either the payroll software provider or bureau, or by the pension provider, so an in-depth knowledge is not a necessity.

A key task for advisers will be to help keep their small business clients safe from action by The Pensions Regulator.

The most recent compliance and enforcement bulletin issued by TPR, covering Q4 2015, accentuates the positive with its headline stating 90 per cent of the 12,000 SMEs scheduled to start auto-enrolment in the summer had done so by the end of the year. Looking at it the other way around, 1,200 have not met their duties months after they were required to do so.

Dig further into the detail of TPR’s report and you will find 1,021 employers were issued with a £400 fixed penalty notice in the last quarter of 2015 alone. Up until 30 September, only 573 of these notices had been issued since auto-enrolment started  in 2012.

A similar picture emerges with compliance notices, with 2,596 issued in the last three months of 2015 compared with only 2,222 having been issued in the three years up to 30 September.

Although the number of escalating penalty notices was small, at 24 for the quarter, only seven had previously been issued. These are potentially the worst sanction for an employer to receive, incurring daily fines of anywhere between £50 and £10,000.

These statistics ought to be seen as marketing gold dust for IFAs. What becomes clear from them is a large number of the 10,800 SMEs that have now complied needed a lot of prodding to get them over the line. The other 1,200 have already begun to feel the financial pain of non-compliance, which is only going to get worse as the number of escalating penalty notices issued increases.

Indeed, take 2016 when 480,000 SMEs are set to enrol, 40 times the number TPR’s quarterly bulletin covers. Now scale those numbers up: that would be 40,000 fixed penalty notices and over 100,000 compliance notices. And that is probably an underestimate.

As the escalating penalty sanction is used as a last resort, its numbers are currently low. These notices are also more likely to have been issued to employers that were required to stage before the 12,000 SMEs in summer 2015. So it will be interesting to see how many of the 1,021 Q4 2015 fixed penalty notices become escalating ones in Q1 2016.

This year represents a great opportunity for advisers to help employers avoid regulatory fines and sanctions, which have up until now been largely theoretical due to the small numbers issued. IFAs can also help  SMEs choose a pension scheme that will meet their needs now and can adapt to suit how the business develops in future.

John Lawson is head of financial research at Aviva

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  1. While we are seeing many SMEs acknowledging the issues and asking for advice, we also see a worrying number who think that AE is pretty much like Stakeholder – easy to do and no need to pay somebody for doing something “simple”…

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