“A question of trust”- accountants and auto-enrolment pensions.

Trust

I’m not going to quote Einstein’s definition of insanity as that would be madness. To understand how tactical short-cuts spiral into destruction look at what PPI has done to the share price of our high-street banks

This blog is for accountants who think when a client says

“I’ll leave it to you”

they can park up the van , unload the cheapest tat from the financial cash-and-carry and charge a premium price for sorting out the problem.

Even Watchdog would be amazed at the some of the conversations I have been party to.


For the avoidance of doubt

It is absolutely true there are 1.8m employers to stage auto-enrolment

It is true that most 2/3 of them don’t know when and currently probably don’t care

It is true that they hope that some magic hand will come down in Pythonesque fashion and sort the problem for them and that hand will  have “accountant” written across the knuckles.

But that doesn’t mean that the financial services industry can gorge itself at the expense of another bunch of muppet-customers.

People want to give this problem to their accountants because they trust their accountants to do the right thing by them. Like they used to trust the man from the Pru and their Bank Manager.

The accountancy profession is last profession standing when it comes to front-line integrity. You accountants run the bureaux that pay our staff, they audit our accounts and you are the trusted business advisers we turn to when scared about VAT, RTI, NI and now – pensions.


 

The risks being taken

But everywhere I look, I see groups of accountants preparing for auto-enrolment as if it were a financial cattle market. Captive cattle (aka clients) get herded into pens and leave branded with the workplace pension that the financial farmer selects. The pre-selection processes I am witnessing can be laughable.

The  reputational risk to the accountancy professions of endorsing workplace pensions that subsequently fail is immense. Yet I see little or no due diligence being conducted on the business models of smaller master trusts.

The short-term operational risk of choosing a workplace pension that doesn’t work with the payroll system of a small employer is that the employer quickly becomes uncompliant and risks fines , reparation costs and ignominy with staff

But the sleeping giant among risks must be that the outcomes of a pre-selected scheme is proven to be substantially below that of its peer group. Typically these outcomes are as a result of poor value money – which could have been spotted at outset by due diligence.

This impact will only appear over time and many practitioners may consider this is an inter-generational risk transfer. This is ultra- stupid. The value of an accountancy practice is primarily based on good-will and that based on a reputation for good work. The damage of poor work on pensions will be reflected for decades to come in the valuation of accountancy practices.

If accountants want to see the economic damage of poor due diligence, they should look at the valuations put upon Britain’s IFA networks, many of which cannot be sold for the toxic liabilities of past advice awaiting judgement from the financial ombudsman.

In case there is any doubt about this, as soon as a member gets a whiff of scandal about their workplace pension, ambulance sirens will be sounding. The buck will be passed from member to employer to adviser and it will stop where the PI is most accessible.


 

Risk mitigation

There is a simple means of mitigating these risks- it is called “due diligence’. Before any “pre-select” deal is done , we urge accountants to get a due diligence report on the provider of the workplace pension, preferably from an independent firm of pension consultants with professional credentials.

Better still, ensure that employers who do not want to be penned and branded with your selection of a workplace pension are directed to a provider of meaningful choice. The cost of digital choice is not high, I have seen proper digital comparisons made available at less than £100 per employer.


 

Leadership required

Now is a time for the accountancy profession to show leadership and not to descend to the levels of behaviour that created the pension, endowment and PPI mis-selling scandals. We do not need a workplace pension mis-selling scandal and it’s important that the leading accountancy trade bodies ICAEW, ICAS, ACCA and ICB among others, ensured that due diligence is carried out and choice- where needed – made available.

Above these bodies is the Pensions Regulator. The Regulator too has a role in ensuring that the products pre-selected for SMEs and Micros and Micro-Micros are selected with due diligence. If a master trust is selected, the MAF should be in place, or be about to be in place (let’s let NEST off!). The MAF is a joint assurance framework using the Pension Regulator’s own governance standards and applying them to the Assurance Framework of the accountancy profession. Surely any accounting trade body, marketing group or additional practitioner would choose a MAF accredited workplace pension over one that neither has nor has intention of getting the MAF.

And above all is the DWP and its Pension Minister Baroness Ros Altmann. I hope that – should there be no improvement in the quality of guidance being offered employers, she will step in and set down some firm rules, either through tPR – or in the last resort, in legislation,


“A question of trust”

The Nest Insight 2015 project identified accountants as the key business advisers on auto-enrolment and clearly linked this to employers trusting their accountants above all other advisers.

There is an opportunity to repay that trust, an opportunity to abuse it. I see many examples of that trust being about to be abused and that abuse must stop.

Not all workplace pensions are the same. Shell is not the same as Allied Steel and Wire , a master trust that has achieved MAF has demonstrated commitment over one that hasn’t. Simple credit checks can weed out unsustainable business models. For more detailed analysis of the investment governance, member services and the capacity of each provider to interact with payroll and HR – specialist due diligence is needed (and available).

There is no excuse for accountants to endorse poor workplace pensions. If those poor pensions fail, the blame will revert to the organisation behind the pre-selection.Whether the risks are reputational, litigatory or even criminal, they are risks that accountancy trade bodies, marketing groups and practitioners should not be taking.

This is a question of trust, and we trust that the accountancy profession will wake up and do its due diligence.

 

About henry tapper

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