Without doubt, the biggest shake-up of UK pensions in many years will have taken place by the end of this year. Auto-enrolment is up and running and the retail distribution review (RDR) will be implemented on the last day of 2012. Many IFAs and employee benefit consultants (EBCs) need to make sure they can handle the increased work load and the slightly alien prospect of charging explicit fees for work they have agreed to undertake.
The question some IFAs and EBCs may still be asking themselves is: ‘How should I charge for auto-enrolment?’
Setting out charges
Clients need to see a clear service proposition that gives them the option to pay fees either annually, quarterly or monthly. The service proposition needs to be clear and concise, align itself with the Pension Regulator’s Delivering Good Member Outcomes guidance and should be documented in a signed terms of engagement document. Clients should also be able to opt for additional services at additional costs that are clearly set out in a menu of fees.
Most, if not all corporate clients operate in nearly an identical way in that they charge direct fees for the products and services they offer to their clients. Nobody enjoys paying fees, but if the service being received can be valued and can help promote good employer-employee relations then it at least helps to soften the blow a little.
Businesses all pay fees to solicitors and accountants for the professional services they receive so why shouldn’t they pay fees to their IFA or EBC?
Historically this may have been because the services IFAs and EBCs offered were not valued or transparent enough for businesses to appreciate the important role these firms can play in the smooth running of an employee benefits proposition.
The RDR is the perfect opportunity for IFAs and EBCs to engage with and demonstrate their expertise to their clients, and safely guide them through the auto-enrolment minefield. To do this, a clear, transparent and compliant service proposition is a must.
Yes, the government could have chosen to postpone auto-enrolment to delay the financial burden of the reforms on businesses but, in not doing so, it shows how quickly it needs to reduce the burden and dependence on the state to provide an income in retirement.
Most companies will not have experienced the pain of the auto-enrolment changes yet because they will not be affected by them for a few years. These businesses should at least be planning for the changes in the pension landscape, not only in terms of additional cost to the business to pay contributions for certain bands of workers terms but also in terms of costs of resources to implement, manage, monitor and communicate these changes to their staff.
Richard Grover is a corporate pensions and protection adviser at Wingate Benefit Solutions