2014 is undoubtedly a crucial year in the automatic enrolment timetable. We’ll be past the big employers and into SMEs, who we know are less well resourced to manage workplace pensions and I suspect – in the main – less well prepared. I don’t mean to do SMEs a dis-service; I just mean they’re unlikely to have someone within the firm who is solely tasked with getting the pension scheme sorted out, e.g. a pensions manager.
And there are a lot of SMEs. I reckon to meet the demand across the whole industry, we’ll be setting up 4 schemes per hour next summer.
So we want to be able to look back at how 2014 was a success; to ensure that the second full year of automatic enrolment went well and that many more people are now saving for retirement; that we are close to a tipping point where more people have been auto-enrolled than haven’t; there’s an expectation amongst the unpensioned that it’s coming; there’s a genuine air of interest and even excitement about saving. Ok, that last point is a stretch.
Last week, I talked about the need for us all to listen to these employers and what they have to say. This week, I echo that message in that if we’re going to see success in 2014 we need to pay the same attention to the provider / adviser relationship. If we assume that most employers will want or more likely need advice, then providers need to work closely with advisers to ensure they are able to deliver the services their clients need.
In my recent engagements with advisers, I’m hearing some really interesting themes develop:
Some are concerned at the capacity of the provider market, or simply the willingness to provide terms. While NEST has an obligation to take any employer who wishes to meet their pension duties, having only one provider available to do so would create a difficult monopoly.
One adviser talked to me about the growing costs for SMEs. With no ability to off-set adviser fees through commission or consultancy charging, some pension providers making charges for auto-enrolment middleware and some payroll providers charging for upgrades, it may cost employers a lot more than just the administration and contributions. This will be a worry for the smallest employers with the most limited budgets.
I’ve heard many advisers talk about the different services they can provide; provider selection, implementation, ongoing governance or member communications. Most seem to be considering fixed fees for different component parts, and perhaps offering a ‘pick and mix’ style quote. Some consider the upfront fees the most important, but others are saying the ongoing fees are most valuable, if looking beyond auto-enrolment to a longer lasting client relationship.
Some are saying that the attractive fees are only available in 2014, with smaller employers beyond that perhaps only willing to pay £500 or £1,000 for limited services in complying with their duties. Any advisers working in that space will need to adapt a proposition from a ‘cost-minus’ perspective, i.e. rather than work out how much it costs and add a profit margin, you work back from the figure an employer is willing to pay and see what you can do for that amount.
So, what will we say when we look back at 2014? Well, rather than spend time trying to predict that, I want to spend time listening to advisers and discussing how we will ensure it’s a success. Those advisers I speak to seem firmly in this latter camp. And those commentators who want to continue to generate headlines about how bad it could all be – well – I guess that’s how they’ll spend their time. I won’t be speaking to them much; I’ll be too busy.