Small employers are sorting the pension problem – but they need some help!

 

Sage auto-enrol

There are a lot of organisations taking the credit for auto-enrolment and it’s true it has worked because Government , providers and business advisers have worked together.

But the heavy lifting has been done by getting on for a million small employers who are now participating in workplace pension plans – and enthusiastically too.

I have mentioned before how I and a group of providers spoke to a packed meeting of small employers at the Sage Summit. Without exception, these employers put up their hands in agreement that they felt a duty of care to their staff to source and maintain a good workplace pension.

Legally, this may be defined as an implied obligation of good faith, but I prefer the good old fashioned phrase “they cared”.

Employers care and they will have to care a lot more from April when their obligations to contribute to their staff’s pension pot double. They will have to find 50% as much again in April 2019 and at each stage they will have to take more from member’s pay packets.

We should not underestimate how much we owe to employers for embracing auto-enrolment compliance and paying the first 1%. The increases will come at a time of low wage growth for higher paid employees but substantial increases in the minimum and living wages. In short, employers are having to shoulder the burden of regulatory changes from business at usual. Let’s be clear, there has not been a massive hike in productivity, coping with these changes will be born from the boss’ and other shareholder’s pockets.

These bosses are not rich magnates of the Lord Snooty variety, but ordinary men and women who have been employing others on their own account. They deserve the title institutional investors for they pool other’s contributions and send them for investment (the FCA’s current definition).

As we have required them to adopt the new employer’s duty, so we should empower them to help their staff as pension champions. I use the word “champion” to differentiate the task from “experts and expertise”.

It is within employer’s capacity to promote the idea of workplace pension saving. It is also possible for employers to signpost certain functions of the Pension system that are available to members

  • TPAS, a free to use pension advisory service , able to answer member questions, signpost next steps and even help with disputes.
  • Pension Wise– an extension of this service for those at or about the point where they wish to convert from pension savers to pension pot spenders
  • Pension Dashboards – coming soon – information hubs able to bring together personal information to enable individuals to consolidate digital info on what they have by way of pots and rights
  • Pension Consolidators – services able to physically manage the pots into one great big pot
  • Pension Governance – the reports of IGCs, Trustees and others relating to the performance of the workplace pension

There are many other important services offered to members which I could add to the list, but you get the gist. All of these services offer valuable additional support to the members of workplace pensions and can be promoted by employers , if employers knew how to do this.

I see the job of the pension industry, not to spend time selling rivals  to these “free to use”  services, but to enable employers to plug in to what is already there.

This is a radically different business model for advisers. With the exception of pension consolidators, who have more in common with providers than advisers, all of the services fall outside the established IFA/EBC vertically integrated business models.

That is not to say that financial advisers cannot run their wealth management businesses as an adjunct to the corporate services they promote, nor that the traditional need for longer term tax advice, business and personal protection and indeed the basics of financial planning cannot be sold as part of a wider package.

But the focus of corporate advice for SMEs has to be the need of employers for the free to use services that make their lives easier.

I see the natural conduit for such information as those who provide payroll services , the organisers as the payroll software providers and the managers of the process, those forward thinking advisers who will build on the business relationships established through the first stage of auto-enrolment staging.

None of this is very remarkable when you think about it in terms of business process. However, it will take a remarkable change in the current organisation of pension advisory business architecture. It will mean that relationships with IGC, Trustees,  TPAS, governance specialists and regulators will needs be much more agile – capable of responding to changes in demand and able to promote demand through proactive initiatives.

It will mean to a relative disempowerment of the employee benefit consultant and corporate adviser from being the first port of call for advisers. For the scale of employers already managing workplace pension participation is so much greater than the capacity of pension advisors , that it is inevitable that individual relationships between advisers and these new “institutional investors” will be relatively rare.

Instead , we will see “pay as you need” services being promoted through payroll to small employers with advisers becoming a common resource. For the most part, advisers will only be needed where the answers cannot be provided from the free to use service providers listed above.

Before I am accused of being a traitor to advisers (again), let me finish by saying that the expertise held within the pension advisor framework is incredibly valuable, so valuable that it needs to be spread rather than focussed purely on a small sector of the employer market- that well served today.

We can only do that by collaborating with the sources of business information that SMEs already use, and building out from there.

Our expertise will be needed collaboratively and in collaboration we will find a place in this brave new world where everyone is doing the auto-enrolment thing.

keep calm and auto-enrol

 

 

About henry tapper

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