So far all (well most) is well
Overall, auto enrolment has been a big success. I think most people would agree with that. Millions of hitherto pension less employees are now saving (albeit modestly) and with low opt out rates perhaps it will become a habit. The success has not been achieved easily; pension providers, payroll providers, advisers and payroll bureaux have all had to learn fast. Solutions have evolved almost “on the hoof.” It’s just so complicated!
The largest employers delivered auto enrolment by spending lots of money and resources on bespoke payroll solutions and seconding teams of employees to their auto enrolment project. There were great fee opportunities, mainly for the large Employee Benefit Consultant firms already engaged with those employers. I suspect a lot of these expensive solutions may be reviewed soon, but they are in place. Job done.
Over the last 12 months payroll systems have delivered much better auto enrolment friendly solutions whilst pension providers have decided what they can and will offer. Employers have still been large enough to need and be able to pay financial advisers to run their project and make them compliant. Adviser firms that have understood the market and technical dynamics of auto enrolment have developed profitable propositions adding real value.
But there is danger ahead. Why?
We have two extremes of employers staging from now on. A) an employer with 30 or 40 employees (possibly a lot more if expanding) and a high turnover of staff. B) an employer with fewer than 10 employees all who have been staff members for years.
Employer A will typically not want to pay an advice fee even though they need to. They won’t have the infrastructure in place or the time to manage a complicated auto enrolment project – and ongoing solution. They will have big headaches. They need you to ensure they do things at the right time – and do exactly the right things in exactly the detail needed.
Employer B may not need a sophisticated auto enrolment technology solution. They can do the initial communications manually and send out joiner/leaver communications on the odd rare occasion required. But they are still likely to need you for advice on the regulations (now and changes in the future) and on the best pension scheme option. NEST may just be their best option, but they shouldn’t have to default to it.
Your fishing net is the employer’s safety net
I believe that far from being a huge lake full of unpleasant, tiny fish to be avoided, the small employer auto enrolment market is a great opportunity for advisers to cast their nets and drag in shoals of tiddlers many of which will become large and appetising.
I see adviser businesses encompassing auto enrolment within their new RDR world of medium to long term professional relationships. They are welcoming the chance to engage with many small business owners that will become great clients of the future.
You probably won’t make money on the initial auto enrolment set up transaction. However, you don’t need to lose money in order to set up lots of long term fee business and new clients.
Next time I will examine how advisers are setting up for small employer auto enrolment success.
Martin Olive, Strategic Partnership Manager
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