Auto-enrolment’s tactical- pensions are strategic

strategic

 

The old questions “are you managing your business or is your business managing you?” and “fail to plan, plan to fail” are annoyingly true- annoying because they are business clichés and doubly annoying as they remind us of the opportunities we failed to grasp because we were “too busy with the day job”.

Part of my job at my company is to provide “strategic input”, for which I am dubbed by my colleagues “the overhead”. You need a thick skin to insist on investment rather than immediate profit-maximisation. To give me strength I remind myself of the note on the payslip of my first employer..

 

“We invest in our future- this means investing in the future of our employees “

I asked the HR manager what this meant. She was retiring and was known for having introduced a pension scheme for her staff – she told me “that’s to remind my FD why we pay into the pension,if I don’t do that every month, no one else will”.

She was right, within a year of her retiring the company had ceased contributions (1992) and it went out of business in 2009 without reinstating them,

The business didn’t go bust for want of a pension scheme but when the big bad wolf turned up, the house turned out to be made of straw!

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The majority of businesses will approach the impending task of setting up a works pension and complying with auto-enrolment processes reactively. They will be driven by short-term considerations- minimising the immediate impact on P/Land  balance sheet. Issues such as the impact on staff relations, future retention and recruitment of staff and the success of the chosen pension in meeting its goals- will be secondary. Today’s numbers dominate conjecture about tomorrow.

But if you look back at the good decisions we took in building our businesses, they will be strategic – investment decisions!

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The decision about auto-enrolment is not about whether but how to invest.

Today’s  imperative is that no matter how painful, we must follow the Regulator’s path towards compliance, NO ONE GETS LEFT BEHIND.

But the investment is yet to come. Once payrolls are aligned, an employer is left with a regular payment to the provider which escalates to c8% of payroll. Auto-enrolment turns from a tactical to a strategic issue.

It’s the same for staff. Pensions assume strategic importance to people when the pension pot is valued in thousands rather than hundreds of pounds. Those pots (post budget) no longer need to buy annuities, they can be used to pay off mortgages, buy round the world cruises- those pots are the financing tool for their dreams.

And when the penny drops, staff will ask themselves why it was that you chose NEST or Scottish Widows, NOW pensions or Legal & General.

And if they ask you why you took the investment decision you did- what are you going to say? “Seemed like a good idea at the time?”, “the Government said NEST?” “we’ve always used Aviva?”.

8% of payroll is a lot to pay for a disgruntled workforce!

If you are serious about risk management , you need to be able to say why, but to demonstrate that you took some care about it. As important is another old maxim that “if a job’s worth doing, it’s worth doing well.

The difficulties surrounding staging and setting up opt-out, opt-in and contribution processes will be forgotten, what will matter is the performance of the investment tool.

In a recent survey, the Pensions Regulator found that 63% of the 600 SMEs they asked, said that the choice of their workplace pension was important to them.

The Regulator reckons that more than 900,000 employers have still to choose a pension for their staff and that over 40% of them expect their “business adviser” to help them with decision. It seems that most micros consider their adviser to be their accountant or book-keeper.

I am reminded of the words of the retiring HRD

 

“If I don’t ……., no-one else will”

 

No-one’s going to thank you now for insisting your client or your employer takes the pension decisions seriously, but they may tomorrow.

 

this article first appeared in http://www.pensionplaypen.com

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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