I’ve recently been asked by the leading payroll trade publication to answer some questions. I’ve enjoyed thinking about them and have set out my answers below. I’m not a payroll manager and I don’t run a bureau – I’m not even an accountant or book-keeper; I don’t think I speak for payroll but I have worked with payroll for four years and my technology service has now helped over 15,000 employers to assess their workforce and/or choose a workplace pension. So I hope this experience will help in solving the fundamental question “how can payroll bureaux profit from auto-enrolment?”
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What kind of service are clients looking for and what should payroll bureaux be doing to more effectively compete for business?
We are at the end of the beginning of the auto-enrolment project. Over the next twelve months the bulk of employers by numbers,(rather less by members), will be staging auto-enrolment. This is the great challenge for accountants and the payroll bureaux that they manage.
Auto-enrolment is as much a game-changer for payroll as it is for the pensions industry.
For the pensions industry it has created a new kind of pension , the workplace pension which is now being provided by a small number of heavyweight pension providers plus a few specialist players. The services the pension providers are offering are being specifically targeted at accountants, book-keepers and their payroll functions. In the absence of a functioning advisory market, accountants, book keepers and payroll managers are being asked to become “pension managers”.
The debate at all levels of the supply chain, is to what extent will payroll step up to the plate and accept the function of “outsourced pension management”. In our opinion, those that can find a way to offer pension services as part of payroll and manage the many pension issues that arise from auto-enrolment, will be the winners.
Simply providing a “compliance” service, may make your practice fit for purpose , but it will not make you a winner.
How far can payroll bureaux go when providing pensions advice? Is it something that they’d, ideally, prefer not to get involved in/would seek to ‘dodge’?
To answer this question, it’s worth looking at what pension managers of large employers do. They are not regulated to give advice and while they may be professionally qualified through the pensions management institute or similar, their value is delivered through experience and technical understanding. These are qualities that payroll managers have in abundance. I think payroll managers underestimate their capacity to deal with member queries and over-estimate the technical gap between them and pension managers.
It is much harder to gain the experience of managing payroll and its staff issues than to get the specific expertise to be a pensions manager.
The critical issue is to understand the dividing line between advice and guidance. We try to keep this simple. Advice is about telling people what to do “delivering a distinct course of action”. Guidance, is about explaining options and the consequences of those options.
For instance, a pension manager knows when asked a straight question, to give a straight answer. For instance
Q. Can you tell me if I should transfer my other pensions into my workplace pension here?A. I can’t tell you what to do , you need to get an adviser to do that; once you have decided what to do, I can help you do it.
I don’t think this is dodging the question, pension managers should be able to signpost to the information and advice that can ensure the member makes an informed decision, they do not have to take the decision themselves!
Typically, pension managers like process but they hate advice, payroll managers can master process and become pension managers so long as they are clear about their roll.
Should payroll bureaux be doing more to better engage with pension providers? Similarly, would you say pension providers are seeking to actively engage with bureaux?
The elephant in the room is “choice”. While most of auto-enrolment demands no choices, the employer is required – in law – to choose a workplace pension. This begs an important legal question, is the employer liable for the consequences of that choice? Every mis-selling scandal I can remember has centred on the question of who is accountable for the decision.
With auto-enrolment, the answer is simple, the employer is responsible for choosing a workplace pension. However the accountant/book-keeper/payroll bureau will be asked which provider they should choose. We do not think that this is within the competence of most practices, however we know that the majority of practices are giving advice on what to do.
Typically that advice is to use NEST – the Government scheme. The message that comes from the Pensions Regulator via the letters to employers creates an impression that NEST is the default solution. It is not, NEST is not a safe haven, it is one of many choices. Advising employers to choose any pension provider has attendant commercial risks.
Some suggest the solution lies with the pension providers.It is very hard for pension providers to actively engage with all bureaux, the big payroll software providers – especially Sage – are engaging with the major pension providers and ensuring that accountants can engage with all of them using the new technologies.
Where the software houses cannot engage directly, they are setting up links with hubs such as pensionsync which give payroll access to a range of providers. We see software providers having the role of facilitating choice but it is still the employer which has to choose.
The gap in the market is the advice on the choice and the documentation of the decision. We see technology as enabling an appropriately priceed solution, the provision of robo-advice made available for less than a couple of hundred pounds is available to employers. This kind of advice is the solution that many progressive bureaux are adopting.
How effective are bureaux at engaging and complying with the Pensions Regulator?
In our experience, bureaux find dealing with the Pensions Regulator easy. TPR.gov.uk provides answers to the frequently asked questions and tPR’s willingness to get out and meet bureau either through events or face to face has made for good engagement and compliance. The issues around compliance tend to be with clients who resist all help on auto-enrolment. We know that there is a hard-core of incompetent and unwilling employers who will fail to comply either wilfully or through a lack of engagement and organisation.
We see very few examples of wilful un-compliance or incompetence among accountants/book keepers/payroll bureaux.
The proviso in all this is around the workplace pension itself. The question of choice remains difficult for the Pensions Regulator , for intermediaries and for employers. If we are to see problems down the line, it will be as likely to be because of the outcomes of the pensions as compliance with auto-enrolment.
If payroll agencies wanted to do useful things, as well as pensions, they could plug in one of our modules and calculate entitlement to benefits and tax credits for employees automatically. Bring the two together, with a dash of forecasting about post retirement , and you’d have a tremendous advice system.