“If you walk down any high street in the country, just about every third retailer is saving with us,” says Patrick Heath-Lay. It is almost as though the B&CE chief executive does not quite believe his firm, which runs automatic enrolment scheme The People’s Pension, is responsible for one in three of everyone enrolled so far.
If he is still coming to terms with the growth of the provider, he can be forgiven. Before auto enrolment was launched in October 2012 the firm was focused on providing pensions solely for the construction industry. But Heath-Lay and chief operating officer Jamie Fiveash persuaded the board it should seize the opportunity and offer a master-trust on the open market.
Three years later nearly two million members are saving into The People’s Pension and the not-for-profit firm can boast household names including Pret a Manger, JD Sports and the Hilton hotel group as customers.
He says: “Originally we thought we’d just do auto-enrolment for the construction industry but two things changed that.
“Firstly, the big construction employers aren’t just about people in hard hats anymore: they are diverse and they have cleaners, recycling divisions and lots of other types of employee.
“You can’t go in there with a scheme just for construction workers, so we had to go beyond the traditional market.
“Secondly, the launch of Nest was a big threat. It was going around trying to get big employers and was not going to stop at the walls of the construction industry.”
As the biggest master-trust after Nest, the scheme has been thrust to the centre of a huge period of change for the industry. Lobbying with the likes of the Treasury and the Department for Work and Pensions is a world away from Heath-Lay’s first role at the provider.
He joined straight out of school in 1985 after his mother, who was working at a Jobcentre, found a job for him in B&CE’s mailroom. From there he gradually worked his way up, and was made chief executive in 2012.
While the firm’s growth has exceeded expectations, the tough economics of providing auto enrolment to millions of tiny pots forced the scheme to add an employer charge from 2016.
Employers will make a one-off payment of £500 plus VAT when they sign up, which the provider says will help pay for the extra support small employers need to comply with auto-enrolment. If working through an adviser the charge drops to £300 plus VAT.
“Just because we’re not for profit doesn’t mean we’re for loss,” says Heath-Lay.
“We need to make sure the way we handle this part of the market is proportionate for smaller employers and doesn’t detract from our existing 1.7m members already in the scheme.
“We don’t believe in front-loading charges on members to pay for that assistance. There comes a tipping point in the auto-enrolment cycle and we know what smaller employers need.
“Our member charge is one of the lowest on the market and if we are to continue serving this market we want to make sure we have an appropriate charge basis so we can sustain the service we’re really proud of.”
Members currently pay a 0.5 per cent annual management charge but Heath-Lay plans to lower fees further once the scheme achieves sufficient scale.
He says: “It’s difficult to put a number on it but I don’t think it will be too long before we think about reviewing long-term pricing. We’ve had a very successful early part of the market and we know how to make scale work.
“There are challenges but hopefully we’ll be able to lower charges within the next 10 years, probably less. But it depends how many more policy changes the Government will throw at us and how many more people we’ll have to bring in to deal with those.”
As well as The People’s Pension, B&CE operates one of the largest stakeholder schemes in the UK. When the freedoms hit, the provider experienced a 60 per cent increase in requests from members, many of whom had very small pots, to take their money out.
The provider led calls for regulatory risk warnings to be removed for pots under £10,000, arguing that the administrative burden on providers outweighed the benefit. The FCA has since confirmed the warning will no longer be a requirement; however, Heath-Lay says the industry is still learning to deal with the implications of the reforms.
He says: “It was a real challenge when the freedoms came in but it just wasn’t possible to introduce the whole set of freedoms. We tried to target the 95 per cent of policyholders to get the stuff in they needed. We couldn’t bring in the flexibility the larger pots needed, but that’s something we are trying to deal with.”
Members can use new withdrawal option uncrystallised funds pension lump sums to take parcels of cash from their pots, but cannot yet enter flexi-access drawdown.
But leaving members to fend for themselves on the open market does not sit well with Heath-Lay.
He says: “Most of our members at the moment do not have pots that would really warrant a sophisticated product, so we’re generally having to pass them to the open market. But we will have to look at whether that’s acceptable and whether there are other options out there.
“In the long term we should be trying to ensure we have our own or as good a tie-up as we can have so we have confidence where the membership are going and they won’t be ripped off. We don’t like the open market bit, just saying ‘we’re sorry we can’t help you’.
“We’re having to play catch-up.”
2012-present: Chief executive officer, B&CE
2011-2012: Director of finance and strategic delivery, B&CE
2010-2011: Director of finance and customer development, B&CE
2008-2010: Director of finance and decision support, B&CE
2007-2008: Head of finance, B&CE
1985-2007: Various other roles at B&CE
What’s the best advice you’ve received?
Always listen. The best ideas often come from diverse opinions and you don’t have all the answers yourself.
What has had the most significant impact on financial advice in the past year?
The freedom and choice agenda. It has really underlined the need for pension savers to have access to trusted guidance and advice in order to make the right choice for them.
What keeps you awake at night?
My eight-year-old son, wandering round the house in the middle of the night.
If I was in charge of the FCA (or TPR) for a day I would …
I would take The Pensions Regulator job in a heartbeat, then I’d knock on the pensions minister’s door to demand that the mastertrust assurance framework be made compulsory to protect savers from schemes that haven’t been independently assessed.
Any advice for new advisers?
There’s a huge demand for adviser support on auto-enrolment. It’s definitely an opportunity.