Smaller companies– those with less than 50 employees are the beating heart of Britain’s economy. It is from among their number that the next Virgin or Tesco will come and though many of them will be toast in ten years time, it is the entrepreneurs who build these businesses who will provide tomorrow’s dragons.
This month we commissioned an internet marketing company to mail 100,000 of these small companies challenging them to sort out a pension for their staff, we also placed ourselves on certain search engines and as a result I’ve had the chance to speak with the owners of 26 businesses in the past fortnight all of whom are actively considering what they can do their employees.
Working again in a small business, I can relate to their financial concerns. These are not businesses with either capital reserves or access to finance, money spent on pensions, is money not spent on expansion and jeopardises the solvency of the business. The choice between immediate competitiveness from higher salaries or long-term prudence through pensions is not an easy one and it takes a bold owner to take a long-term view.
The cynical in the pensions industry have designed products which look good and deliver little. Small companies have historically been prey to salesmen who use these products to line their pockets leaving employees with diminished pensions about which the salesman cares little.
But there is another group in pensions who take a different view. Organisations such as the Pensions Trust, the Motor Industry Pension Scheme, the Printers, the Milk Industry have set up multi-employer pensions for their staff which – over the years have delivered. Many of the DB schemes are now in trouble, weighed down by the burden of regulation, poor market conditions and unfavourable trends in life-expectancy. However, they have spawned DC schemes which offer smaller companies sound investment strategies, good administration and proper security at a reasonable price.
Now there is NEST. The Government‘s multimillion pound investment in getting pensions to the really small company and to the employees of larger companies the normal providers consider toxic. In my dealings with NEST I have begun to see a side of that organisation which is highly encouraging – they seem genuinely customer focussed. If the service these companies get is as good as the service I’ve got then NEST is going to be a success.
My experience of the last few weeks suggests that by and large, the old-fashioned purveyors of pensions filth, the insurers who produced the dreadful pre-stakeholder pensions are gone – off with the fairies in Zombie Life. Those insurers who stay, there are only about ten of them, are hunting for the big fish, their nets are of too wide a mesh to catch the companies I am talking to.
What we are learning is that a fee-charging business like ours is of some value to these small businesses. They do not want a labour intensive, touchy feely advisory service, they want straightforward choices about what they can do. They want to know whether they can join an industry wide DC scheme or a commercial master trust. They want to know about NEST and whether they can use it now. They want advice on how to avoid being ripped off and they want a simple recommendation about how to go forward.
What I’m also finding is that these companies are good at purchasing. Their business is procurement. Give them the information and they can work out for themselves what suits their staff. They seem keen to pay for this information and for the guidance when they get stuck.
The last fortnight has given me a lot of hope. Sure I’m dealing with a self-selecting community of companies who’ve taken up our challenge but the people I’m talking to are at base camp on pensions knowledge. If my lot are anything to go by, there is a lot more willingness to get stuck in and help staff sort out their long-term finances than I had supposed. Perhaps what have been poo pooed as over optimistic forecasts of opt-out rates will not be so over optimistic after all.
Most importantly for my company, First Actuarial, the exercise we are going for is showing us that there is a role for advisers like us in the brave world post RDR, pre AE and in midst of one of our worst economic crisis’. I suspect that like our clients , we will be up for the challenge.