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Advisers risk being frozen out of auto-enrolment due to tech deals

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Advisers are at risk of being cut out of auto-enrolment as pension providers begin to sign deals that streamline the set-up process.

Millions of employers are still to hit their auto-enrolment staging dates and providers are moving to simplify their journey.

In June, Government-backed scheme Nest unveiled its Web Services function, which allows employers to manage their auto-enrolment duties directly through payroll software.

This month Sage became the first payroll firm to sign up. It says the Pensions Data Exchange allow employers to send “data directly to and from their pension provider with one click, reducing the administrative burden, overheads and potential errors”.

Likewise, Legal & General and The People’s Pension have signed up to software firm pensionsync’s service.

But auto-enrolment experts say the move could see advisers cut out of the process for the smallest employers.

Pension PlayPen founder Henry Tapper says: “The traditional role of the IFA in helping the company set up a pension scheme themselves now will disappear with the new technology. It cuts out the need for any form of intermediary.

“This will become the norm. We’ll see a host of similar deals over the next few months to the point where a large number of employers will be able to set things up via payroll.”

LEBC divisional director of group savings and investments Glynn Jones says employers at the micro end of the market are more likely to use accountants and book keepers than advisers.

He warns this could leave employers without expert help when selecting a scheme.

He says: “I get that people want a straight through proposition but there are risks. The problem is if you have a joined-up proposition with Sage or whoever, you have to go with a particular scheme. Book keepers and accountants are still very nervous about suggesting a scheme because if things go wrong they might have to draw on their personal indemnity insurance. It’s great to have these solutions, but someone has to give a recommendation.”

Jones adds if employers ever want to offer staff advice, they will not have someone in place who is able to give it.

But Rowley Turton director Scott Gallacher says the kind of firms which would use streamlined solutions would not typically employ an adviser anyway.

He says: “There is a huge advice gap on auto-enrolment but payroll integration won’t do us out of a job. There is an argument that it is probably not economic for people to have proper advice for auto-enrolment at the lower end.

“Better payroll and pensions integration has got to be key to bringing down costs.”

Expert view

The biggest headache for those staging auto-enrolment is choosing a pension and the biggest bottleneck for payroll running auto-enrolment is sending and receiving data from providers. Both problems can be solved by improving the way we transfer data.

Providers need to understand what they are taking on, so a pre-assessment of data is critical. Employers who can send their data using the new technology created by pensionsync and aeXchange are at an advantage when choosing a pension.

The  technology also speeds up scheme set-up. The link between Sage and Nest allows Sage customers to set up pensions in seconds. We expect most of the major providers to be talking to most payrolls this way, either through direct links (as Sage and Next have built) or through portals such as pensionsync and aeXchange.

But the biggest win of moving from files to the direct data transfer model is in the ongoing management of the payroll/provider interface. The time taken to download data and correct errors is already proving troublesome to payroll departments and the multi-employer payroll bureaux. As numbers ramp up from January 2016, the increased workload for payrolls will be immense.

The winners will be the payroll bureaux which can use technology built by their software providers and talk directly to selected providers.

Similarly, those providers which have the capacity to take data through directly from payroll are going to find their ongoing costs slashed.

They will also be the winners for new business from the 95 per cent of the remaining 1.75 million employers yet to stage.

Payroll software companies and pension providers both owe a debt of thanks to Pensions BIB for creating the Papdis data standard which enables even the smallest payroll and workplace pension plans to benefit from this progress. It is arriving in the nick of time.

For advisers, this means shifting the value proposition back to pensions and financial planning and away from operational support. The days of middleware as we have known it are numbered.

Henry Tapper is the founder of Pension Playpen

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Are advisers bothered?

  2. Agreed Harry, we knew from the start that AE was designed to work without adviser involvement, I think some of our colleagues have made it look more complex than it really is in order to make money out of it.

    For my part I have agreed a small fixed monthly retainer with one firm to give advice and guidance to the employer and the members as required, beyond that there is not much more value I can add.

  3. Tech deals don’t necessarily freeze out Advisers. But there will be an imbalance in the Pension Market, for a finite time period, as different Pension Providers bring online their APIs at different points in time. The early adopters of API technology (like NEST, People’s Pension and L&G) have invested in APIs to operate efficiently at scale. But at some point in the future all Pension Providers will receive data via APIs, and then the playing field is level again.

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