While all the noise is about the risks of employers not fulfilling their duties to set up and establish the processes to make “auto-enrolment” happen, the point of auto-enrolment, which is of course to deliver decent income for staff in later life- has almost been forgotten.
When we speak to employers and their advisers we often hear the complaint that as unregulated advisers, they cannot meet their client’s requests for advice on whether their existing workplace pension is fit for purpose or on what workplace pension to choose going forward. There are two reasons given
- Accountants would fall foul of the FCA’s regulations on advice
- They don’t have the competencies to deal with these matters
I’ll come back to the second point in a moment but I’ll be categorical that accountants and employers can assess whether an existing pension qualifies and can choose a new qualifying pension without any fear of censure from the FCA. This is opinion, it is a matter of policy
This statement is written on page 11 of the Guide to the regulation of workplace defined contribution pensions jointly published by the FCA and the Pensions Regulator in March. If you want to read the document here is the link
There is deep scepticism about this statement at all levels of the accountancy profession. The ICAEW have not commented on it nor other trade bodies. If you follow the thread on Tony Margaritelli’s recent video blog , you can see how entrenched positions are.
It may help here for me to explain why the FCA and the Pensions Regulator have issued this statement. It has been clear for some time that the DWP is making the “Qualification” for a workplace pension tougher. It is intending to introduce ne rules in 2015 which will reinforce the governance of these pensions, make charges and costs more transparent and introduce a cap on the charges on the default investment option. In April 2016, it will introduce a ban on legacy commission being paid to regulated advisers from such pensions and will also ban the use of active member discounts (a means of getting leavers to pay the pension costs of those at work. Finally, the costs of auto-enrolment will have to be borne by the employer and not by the member.
The Pensions Minister, Steve Webb, has repeatedly stated that he wants workplace pensions to be “non-advised” products and has explicitly linked these Qualifications to the purchasing process. The message is that if a pension is “Qualifying”, it is fit for purchase and sits in what US Regulators call a “safe harbour”.
There are now only 22,000 IFAs in the UK, down from nearly 100,000 at their peak. The RDR and in particular the abolition of commission has meant that few of their number advise on workplace pensions. They tell us they have difficulty in getting paid for that advice. It is true that there is a reluctance to pay IFAs regular fees but is part of a wider problem IFAs have adapting their business model.
Taken together, the regulatory easement mentioned above and the reluctance of IFAs to advisers, should present a great opportunity to practitioners to fill the gap. But this presupposes that there is demand from employers for advice on the purchasing decision (and an assessment of existing pensions). Recent research by the Pension Regulator and an independent study by NOW pensions suggests that employers are concerned that they choose the right pension for their staff. Only 8% of small employers questioned by NOW considered their choice of workplace pension unimportant.
So far, practitioners have not experienced this demand but this is because the employers staging auto-enrolment thus far, have mostly had workplace pensions established for some time. Many of these pensions will become uncompliant in the next two years and there is an opportunity for a pensions audit in the meantime. But most of the 1m+ employers still to stage auto-enrolment have no workplace pension or a pension manifestly not fit for purpose.
Returning to my second point, the skills needed to help clients audit existing plans and choose new ones are skills that practitioners possess. What they lack is not the analytical capacity but the technical knowledge of the Qualifying rules and the research to help clients make informed choices on workplace pensions.
We expect to see workplace pension providers marketing directly to you in the months and years to come, keen to engage you as their new distributors. You will see more and more pensions people like me on AccountingWeb , at your conferences and in your journals. It would be fair to say that Britain’s pensions industry needs you rather more than you need the Pensions Industry, but that is a position of strength which you should individually and collectively be enjoying.
Your next step may be to think through the implications of the regulatory easement. If you feel that your practice development would benefit from providing help in the assessment and choice of workplace pensions, there are places you can go to get help. The website we run www.pensionplaypen.com/register being one of them.
This article first appeared in http://www.pensionplaypen.com