For companies facing the requirement of having to automatically enrol their employees into pensions, the landscape could be likened to sandbanks populated by large birds. Some have their heads buried in the sand, while others are busy collecting materials in preparation to build their nests.
The sands themselves are subject to the tides and winds of potential shifts and changes in the criteria and regulations. In mid-March, for example, MPs on the Work and Pensions Select Committee recommended that two key restrictions on the government-backed National Employment Savings Trust (Nest) should be lifted: the ban on transfers into Nest and the cap on annual contributions.
For advisers, this landscape presents challenges and opportunities. Acceptance of the proposal to allow transfers of existing pension pots would bring IFAs more work helping individuals make informed decisions on such transfers.
Many IFAs are more excited about the opportunity to develop their corporate business. Some hope to help companies adapt their existing pension schemes or to advise them on setting up an in-house pension scheme as an alternative to Nest.
Another field of opportunity opening up for IFAs is the need for companies to put in place systems to deal with the compliance and data administration burden of auto-enrolment. More than 100 IFAs have signed up to the Jargon-Free Benefits corporate platform, developed by Steve Bee (pictured).
Providers step up competition
Many of the large pension product providers, such as Standard Life and Aviva, are also entering the fray with auto-enrolment solutions. This is an arena where competition is likely to intensify in the months ahead of the first staging date for large companies to comply with auto-enrolment regulations in October 2012.
Jamie Jenkins, head of work place strategy at Standard Life, expects auto-enrolment to add an extra 400,000 or so members to the 1.1 million members of Standard Life’s 35,000 employer pension schemes. ‘It makes absolute sense to build something to help make it easier for employers, even for the ones we have, never mind those we might take on,’ he says.
Helping to ease the burden
Mark Rogers (pictured above), managing director of Clay Rogers & Partners, says auto-enrolment ‘poses a very big burden’ for financial advisers in designing a scheme for employers. The process needs to be ‘far more detailed and far more scientific’ because of the need, for example, to work out the relevance of each scheme for each bank of employees.
He believes most of the larger companies will have made their preparations for auto-enrolment ahead of October 2012. But this is not the case for most small-to-medium-sized enterprises (SMEs), of which there are more than one million in the UK. ‘They haven’t a clue what they have to do,’ says Rogers.
Clay Rogers has run six seminars since last October to make companies and professional advisers, such as lawyers and accountants, aware of the need to take action and budget for auto-enrolment. As a result, the firm has gained new contracts with four or five companies to set up pension schemes.
Most of the firm’s existing 300 corporate clients already have pension schemes and the work for them will be to make sure those schemes meet the new requirements. However, Rogers says: ‘Most companies have their head in the sand and are hoping it will go away.’ He predicts a ‘cascade of companies leaving it right to the last minute’.
Rolling out pension schemes
Karen Barwick (pictured), a director of Laurus Associates, says her firm already advises on and administers pension funds for most of the SMEs that make up its client base in the North East. She expects the firm to grow business a lot in the next couple of years through helping corporate clients roll out their existing pension schemes to all employees. She says it is easier to alter the rules for an existing scheme than to set up a new one.
‘Some are embracing it and are willing to go for it now,’ says Barwick, attributing this willingness to the fact the firm’s clients have been ‘well educated’, in conjunction with solicitors and accountants, at every review over the past 18 months. A couple of her clients have already extended their pension schemes to new employees, so they can be seen to offer a pension as a benefit before they are required to do so.
Although uncertainties remain in the auto-enrolment landscape, the first staging date of October 2012 for larger companies is unlikely to change and is fast approaching.
For many IFAs, the demands of auto-enrolment offer growth opportunities, particularly in helping SMEs. That is, if they are able to wake up those whose heads are still buried in the sand. IFAs that are already focused on the corporate market have a fertile field in helping clients adapt existing schemes to auto-enrolment.
For pension providers, the area of automated solutions is set to be a battleground.