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Auto-enrolment part two: five reasons firms will need more help

Aviva's national business development manager Duncan Singer shares his five top tips for the secondary market of auto-enrolment

The widely predicted capacity crunch around auto-enrolment (AE) did not happen. Most employers have met their duties more or less on time, and most employees have remained ‘in’.

But now the auto-enrolment process is changing. First, new businesses will no longer be given staging dates several months in the future. Any new businesses with at least one employee will need to have their workplace pension scheme in place within five weeks of launching.

Second, we are now entering the secondary market phase. That involves companies who already have an AE scheme in place but are now looking for additional support. Some may want to change provider, simply because things haven’t gone quite to plan. But some employers may be looking for more help after realising that there are ongoing compliance and governance services that can be best provided by a financial adviser.

This is why I believe now is a crucial time for advisers to look again at entering the AE advice market.

So what are the areas that businesses need help with?

The widely predicted capacity crunch around auto-enrolment (AE) did not happen. Most employers have met their duties more or less on time, and most employees have remained ‘in’.

But now the auto-enrolment process is changing. First, new businesses will no longer be given staging dates several months in the future. Any new businesses with at least one employee will need to have their workplace pension scheme in place within five weeks of launching.

Second, we are now entering the secondary market phase. That involves companies who already have an AE scheme in place but are now looking for additional support. Some may want to change provider, simply because things haven’t gone quite to plan. But some employers may be looking for more help after realising that there are ongoing compliance and governance services that can be best provided by a financial adviser.

This is why I believe now is a crucial time for advisers to look again at entering the AE advice market.

So what are the areas that businesses need help with?

1. Making sure corporate clients are compliant, and chose the right earnings definition and contributions basis

Very few employers could hand on heart confirm that they are compliant. Having that reassurance is worth paying for. What is also worth paying for is having a professional adviser look at the contribution basis and saving cost.

This can be through switching to basic pay from qualifying earnings (or vice versa), looking at salary sacrifice as an option, or identifying systematic errors occurring in the payroll run around treatment of tax relief, contribution basis etc.

Advisers will begin to find common mistakes and can also access middleware that will assist in identifying them. Advisers can also develop standard templates around a compliance and audit review service such as a fact-find and client report. The cost of this service will be critical in engaging clients with ongoing consulting and administrative services.

2. Ensuring appropriate payroll and pensions scheme systems are in place

One of the most significant changes brought about by AE is the need to carry out an assessment on each and every payroll run. This has meant that many payroll managers or administrators, whether in house or out-sourced, have had to become subject experts on some of the finer detail around auto-enrolment.

The experience payroll bureaus have gained in this field are part of the reason we have not seen the predicted melt-downs. The reality is however there aren’t enough of them out there, so mistakes will happen.

The other really important issue here is the quality and levels of integration between payroll, AE assessment and pension scheme management software, which can vary considerably. This is a fundamental part of traditional pension consulting, as the quality of people and systems involved has a direct bearing on processing time and costs of scheme administration, levels of data security and overall efficiency. This is an area where an adviser’s expertise can add real value.

3. Making sure employees are fully engaged  

By their very nature many employees of SMEs are more directly engaged with the business owners and management. Any proposed changes to the scheme will generally need some form of engagement with them even if it is just for a seal of approval.

This is particularly true if it involves a significant change such as the up and coming increases in contributions or changing the provider of the pension scheme.

Advising a business on AE may also open doors to advising the members of the scheme – another potential revenue stream.

4. Switching pension scheme provider

While changing pension provider might be a last resort, there are plenty of reasons to expect this to happen. Not all SMEs will have carried out some form due diligence around their selection of provider. As the market evolves from getting compliant to establishing good governance, the spotlight will increasingly get turned on the underlying quality of the scheme, any tax disadvantages, and the price of other good quality schemes.  

Although there may be some providers offering bulk transfer processes on a non-advised basis, this is unlikely to be a common route for smaller schemes. Therefore, the adviser will not only be involved in consulting the company on their employee communications for this exercise but also in ensuring that members best interests are being protected from a regulatory perspective.  

5. Getting to grips with cyclical re-enrolment and introducing governance standards

The AE regulations also introduced a mandatory process every three years compelling employers to re-enrol their opt-outs within a prescribed six month window.

There are also a number of discretionary decisions to be made around the treatment of staff that have ceased active membership within the past 12 months or have exemptions against the lifetime allowance place.

Again, this is a highly prescriptive and complex process running to 27 pages in the The Pension Regulator’s guide, which will also require the employer to re-declare their compliance within a prescribed period.

Having got themselves compliant, we would expect many smaller employers to delegate this process, which presents an opportunity to agree ongoing consulting or administrative services around it.

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