Advisers and employers need to select their auto-enrolment partners quickly if they are not to miss the boat, says Ian McKenna, director, F&TRC
I recently heard a great analogy for auto-enrolment at one of our workplace forums. One adviser described it as like having your first child – you spend nine months getting ready for it and then a whole load of other things emerge that you hadn’t thought about once the great event takes place.
Feedback from firms who have actually had first-hand experience of the process validates this view. There is a whole range of issues that large numbers of advisers including many who would pride themselves as corporate market specialists have not prepared for.
A couple of months ago I was involved in the judging process for some industry awards. Considering those presenting to us were pitching their credentials as “the best of the best” I found it alarming quite how few adviser firms had completed their process to identify who their key auto-enrolment partners would be.
This is relevant because although we are only a few months in to the process, the messages I’m hearing from an increasing number of advisers suggest that there is likely to be a severe shortfall of supply of corporate pensions capacity.
Serious cracks are already emerging in the auto-enrolment regime with evidence that pension providers are now being very selective as to the schemes they want to take on. The latest suggestions are that this is now extending to some of the master trusts, who unlike Nest have no obligation to take on all they are offered. If there is going to be a major excess of demand over supply this presents a stark contrast to the constant lobbying we are seeing from politicians of all persuasions and from the consumer lobby to reduce charges.
This shortage of capacity is an inevitable consequence of demands for lower and lower costs combined with ever increasing regulation. Clearly it no longer makes sense for many global institutions to employ their capital in the UK pension market where successive governments have sought to regulate both price and outcomes. The margins at which Nest is expected to operate would leave any organisation struggling to provide the level of support and service needed by employers and employees. While I can entirely see why Nest would want to lift the current restrictions on them for commercial reasons, there must be a counter argument that these should stay in place at least until the organisation has delivered on its primary role as the market of last resort for employers who cannot find a supplier elsewhere.
Steve Webb is clearly the most able and dedicated pensions minster for a generation but he needs to recognise that constantly pressing for lower charges will make pension providers employ their capital elsewhere and leave the UK lacking the providers to deliver the pensions he wants people to have.
This is now being compounded by the possible prohibition of consultancy charging which will mean employers cannot easily afford the cost of implementing auto-enrolment. The minister needs to be really careful with his next moves; unless he can find a way to help manage the surplus of demand over supply and enable organisations to be reasonably remunerated for the assistance they are being asked to provide, auto-enrolment could collapse into the sort of fiasco which will benefit no one. To me it is a matter of if rather than when the auto-enrolment timetable must be relaxed.
So much for the political dimensions. What does this all mean for advisers and their employer clients? Truly seamless, technology-based, paperless processing must be a primary requirement for any pensions provider selected. Even if organisations are managing to function using paper, it will become increasingly difficult to do so as volume grows.
My organisation has recently been involved in extensive research to benchmark the propositions of both leading auto-enrolment services and group pensions providers, which will be published soon.
Beyond this I believe there is a need for wider education services to support advisers in understanding the key issues an employer needs to get to grips with when addressing auto-enrolment. This should be part of the partner selection process. Advisers who want to capitalise on the opportunity from pensions reform must now move quickly to identify their preferred partners.