Get ready for the tidal wave of AE business

Paul Budgen, NestA tidal wave of new business is about to hit the intermediary sector – if they want it. Getting your proposition right is key to making it work says Nest director of business development Paul Budgen

In the next 18 months, 1.2 million smaller businesses are aiming to meet their auto enrolment duties. This is a huge number. I’d even be tempted to call it a tidal wave of new business for those aiming to support employers in setting up a workplace pension for the first time.

There are signs not everyone sees it this way – analysis of The Pension Regulator’s figures showed that last autumn 66 per cent of IFAs viewed auto-enrolment as a business opportunity. However, by the time we reached spring just 53 per cent did, a fall of 13 per cent. So what happened? Commentators thought that the nature of the businesses enrolling might be the cause, as smaller businesses were thought to be potentially less profitable as clients. Nest research previously indicated almost three quarters – 74 per cent – of small and micro employers will turn to an intermediary for support, so there’s clearly a big appetite for support from this group.

I know many IFAs are now working with small and micro employers, and at Nest we’re already working with some larger advice firms to offer a solution for their smaller schemes.  So we already have some clear ideas on how to ensure auto enrolment runs smoothly and efficiently when working with smaller employers.

Making sure the scheme you’re using is straightforward and accessible is key. We’ve seen how business intermediaries, such as payroll bureaux, accountants and IFAs, are likely to be administering auto enrolment for a large number of employers simultaneously. It’s one way for smaller clients to be a profitable option for IFAs. Managing this volume of employers needs to be straightforward and flexible.

Technology can play a key role in supporting intermediaries in their work. We developed Nest Connect, a portal for intermediaries to administer Nest on behalf of multiple clients from one place and one login. Or Nest web services, which integrates seamlessly with payroll. It is useful to take a look at what pension schemes offer to help you offer your clients auto enrolment support.

Recommending a scheme employers know they can trust is also vital. As 83 per cent of smaller employers have never offered a pension before, they may need reassurance that the scheme they use can be trusted. A good gold standard for a high quality scheme is the Pension and Lifetime Savings Association’s (PLSA) PQM Ready status. Employers can see that a scheme meets the association’s high standards including having good governance, low charges and clear member communications. There’s also the benefit of choosing one of these schemes in that when employers pass the contributions element of the PLSA assessment process, they can be awarded a Pension Quality Mark

Clarity of communication is important. Complex and unnecessary jargon can quickly stop people understanding how their pension scheme works, generating needless questions and slowing the whole process down. Our research found that 57 per cent of respondents thought that sometimes the language used to describe pensions seemed so complicated that they couldn’t understand what the best option was for them.

When you consider that 29 per cent of all respondents were putting off thinking about saving for retirement because they found pensions confusing, you see how important it is for engagement that savers understand what pensions are all about. This is particularly true when you’re working with a small employer, as they need to know the scheme you’ve selected provides clear communications that don’t cause their workers to ask endless questions sparked by impenetrable technical argot.

Intermediaries have a huge role to play in helping ensure every employer can access a high quality pension scheme for their workers. As auto enrolment turns four and pension saving becomes the new norm, the opportunity it represents for IFAs is only going to get bigger. At Nest, we’re keen to work with advisers and help them in meeting this unprecedented demand. By the time auto enrolment turns five, what share of this market does your firm aim to support?