However, between that day and the present, a window of opportunity exists for proactive advisers to place themselves at the heart of small and micro businesses in dire need of help, even if these businesses do not know they need advice yet.
SME market overlooked
As I write this, all firms with more than 250 employees will have already received the one-year notice of their staging date from The Pensions Regulator. These letters will be a sobering reminder for tens of thousands of small to medium-sized enterprises (SMEs) that these new reforms are real and about to happen.
But how is the pension industry preparing to cope with unprecedented demand from the SME community? In my view, not very well.
Given the Association of British Insurers’ recent admission that providers had not in the past proved they were on the same side as the consumer, it seems unlikely providers will be able to see things from the small employers’ point of view.
There are products the smaller employers will want and need as auto-enrolment washes over them, but, by and large, these are not products that are supplied by insurance companies.
Advice is the one true product
There is more to helping employers cope with auto-enrolment than simply providing a pension scheme for them, whether that be the National Employment Savings Trust (Nest) or a traditional product provider’s scheme.
We have far too many different versions of the same thing in our pension marketplace these days. It is difficult to see why we will need so many products, especially if they keep being made more similar by legislation.
Furthermore, it is likely that what we have called ‘pension products’ in the past will become as about as relevant to people’s lives as floppy disks are to today’s iPad users.
People will not care if their pension is blue, red, egg-shaped or whatever. The things we used to call financial products are nothing other than components, smaller parts of the whole.
The one true product that comes from our industry is advice. This is not something that comes packaged with a pension scheme. You cannot get it on Amazon, Ebay, or price comparison websites, in any of the Sunday papers, on the high street or down the pub.
It is only available from professionally qualified advisers, who are able to say: ‘I understand you and your position and I advise you to do this and for these reasons.’ That is a valuable ‘product’ and one that will hopefully be made available to more and more people through the workplace.
These changes may be brought about by pension legislation, but it is wrong to refer to them as workplace pension reforms.
The auto-enrolment legislation is geared around making employers communicate with their employees about workplace benefits, so they are really workplace communication reforms. That is why the skills of advisers will be necessary as the changes are rolled out.
Employers must have a pension scheme that meets certain defined standards, but beyond that, the real requirement is that they enter into an ongoing dialogue with their employees about the latter’s new rights under the legislation.
Employee benefits consultants (EBCs) have traditionally provided advice to employers and access to required technologies. However, it is unlikely EBCs will be coming to the aid of tens of thousands of SME firms and hundreds and thousands of micro firms, just as it is improbable traditional pension providers will provide workplace pension schemes for them. EBCs’ business models are too inflexible and ingrained.
Payroll systems are not enough
Surely payroll providers are best placed to step in and help the smaller employers out with all this extra administration and bother?
I have met many employers who are counting on that as an outcome, but there is a limit to what a payroll provider can do. They can help an employer understand the ever-changing categorisation of their workforce, but there is no payroll system anywhere that can communicate with employees and keep the records required to demonstrate compliance with their auto-enrolment duties.
The best hope for SME and micro-employers is that savvy advice firms, perhaps in tandem with accountancy partners, using technology, help those employers get on with the task of communicating with their millions of employees.
By placing themselves at the heart of the businesses, new model firms will be well-placed to provide our industry’s real product, advice, to millions through their workplaces.
Steve Bee is chief executive of Jargonfree Benefits