We can expect a sigh of relief all round now auto enrolment is in place. After years of speculation, consultation, planning and implementation the first employees have been automatically entered into company pension schemes under the new regulations.
But this month marks the beginning, not the end of the mass enrolment of Britons into workplace pension schemes. While the very biggest companies can reflect on getting over the finishing line in time, an essential ongoing role remains for advisers in helping them comply with their auto-enrolment duties and maximise the value from their pensions spend. For the million or so smaller employers waiting to come on stream, and those advising them, the real work is yet to begin.
Key to efficient implementation is a clear understanding between advisers, employers and pension providers as to what each’s initial and ongoing responsibilities in the process are and how these will be shared between them.
Planning these roles will obviously depend on the size and profile of the employer and the goals they are looking to achieve from the project – mere compliance or something more valuable in terms of engagement. It will also involve considering technical aspects such as which auto-enrolment middleware is to be used, which provider and which default. Obviously until a provider is actually selected, discussions will be between employer and adviser.
Tom McPhail, head of pensions research at Hargreaves Lansdown says: “I don’t see a pre-set formula as to who should take responsibility for the various stages of compliance such as the initial evaluation, the cost planning, the scheme selection, the worker categorisation, the employee communication, the payroll interface etc.
“Different employers will want to use different solutions depending on their in-house capabilities, their workforce, their existing scheme and so on. The adviser’s role is to walk through with the employer all the various stages, agree who is going to do what and then potentially take responsibility themselves for some elements of the delivery, such as scheme selection or member communications.”
The role of the adviser will vary hugely, depending on how involved it wants to be, how involved the employer wants or allows it to be and also what is agreed with the pension provider.
“The adviser may only select the type of scheme for auto-enrolment or they may also select or even create the default investment for the members, and could even go as far as providing advice to employees,” says Edmund Downes, pensions manager at Aviva.
Just how much value the corporate adviser can add in setting up the new scheme will be unique to each situation. It could be in the realm of technical support, investment support, administrative assistance or simply advice to the employer and/or employees, Downes says. “Obviously this all depends on what their business model is and how far they feel they wish to be involved,” he adds.
Clearly however, Downes see the scheme administration role as very much that of the provider.
“Irrespective of whether the adviser takes a very active part or is much less involved, the employer is completely confident that the scheme administration is being met. Auto-enrolment compliance is a combined role – providers cannot offer an auto-enrolment scheme unless the employer provides certain information and performs certain actions.”
Equally, he concedes, employers obligations cannot be met unless providers supply a product with the required administration and underlying support.
But ultimately it is the employer that carries the legal responsibility towards their employees. Corporate advisers have a responsibility towards their client but the buck ultimately stops with the employer. Making that clear to employers can assist in galvanising action to get the necessary information required to allow the adviser and provider to do their job.
“Ultimately, it is employers’ responsibility to implement auto-enrolment for their employees,” says Downes. “As pension provider our role is to ensure that accurate information, tools and systems are in place to help employers comply with the new regulations and meet their obligations.”
Technology will be an essential partner in the process as well, with all the main providers launching auto-enrolment compliance tools to help employers meet their obligations. Each have different features, but auto-enrolment compliance and record-keeping is key to all.
Scottish Widows is one of the most recent to launch its auto-enrolment platform – AssistMe – which allows employers to use The People’s Pension or Nest for auto-enrolment alongside the company scheme, and has features to assess employee eligibility and calculate contributions, interface with payroll systems and meet compliance duties. It will also deal with opt outs.
Aegon has recently launched the corporate functionality of its Aegon Retirement Choices platform, which also offers wrappers that take employees from the workplace space into retirement.
Aviva also offers an online compliance monitoring tool called Auto-Enrolment Manager for Employers (AME) which provides assessment and compliance tools to guide employers through automatic enrolment.
“A modelling tool shows the potential impact on their business and to help identify the most cost-effective way to implement automatic enrolment,” says Downes.
The auto-enrolment advice process can be extremely complex, reflecting not just the complexity of the regulatory responsibility on employers, but also the complexity of pensions legislation generally. The adviser will help the employer to select a benefit package that is best suited to their staff, reflecting factors such as trust versus contract, governance and which contribution regime works best for their workforce.
“For automatic enrolment there is a lot of detailed work that the employer needs help with, such as sorting out exactly which workers are caught by the legislation, and which elements of the remuneration package must be pensioned,” says Adrian Boulding, pensions strategy director at Legal & General. “These aspects require careful examination to stay legal and are best done by the adviser working in close conjunction with the employer’s HR team.”
Boulding agrees that who does what in terms of provider and adviser responsibilities will vary from employer to employer and from scheme to scheme.
“There will be monthly administrative tasks around regular contributions, newly eligible employees and leavers,” he says. “There can be an annual certification exercise and there will be a triennial re-enrolment process. How these are divided between adviser and provider can be sorted on a case by case basis to take account of the adviser’s and employer’s preference.
“On top of all that, this will be a changing legislative landscape. Auto-enrolment is very new, Government won’t have got everything right at the first attempt and we must expect ongoing fine tuning of how it works, which employers must be kept abreast of.”
Kate Smith, head of regulatory strategy at Aegon agrees with the complexity issue, saying auto-enrolment is possibly more complex than any set of regulations ever seen in the UK. She sees the role of the pension provider as being one of support, in being there to help advisers to help their employer customers comply with their auto-enrolment duties.
“The advisers’ responsibilities will vary depending on their model,” says Smith. “Advisers are likely to offer a range of services, from helping with payroll, to making sure employers understand their new auto-enrolment duties, to helping them to get ready for their staging date. For some it will be a service proposition.”
Smith very much sees providers being responsible on an ongoing basis to make sure their auto-enrolment solutions, the processes and communication, continue to be in line with the legislation and regulations.
She also sees providers carrying the can when it comes to investment. She says: “We’ll also be responsible for the governance of our funds and our default funds. Advisers may have responsibility for some element of the governance default fund, depending on how involved they were in setting it up or selection for their employer customers.”
Collaboration is key.
“Each adviser has their own particular business model, and each employer has different requirements, but in general terms, the need to collaborate to provide solutions has never been greater,” says Jamie Jenkins, head of workplace strategy at Standard Life. “Auto-enrolment brings a degree of complexity which often requires both professional consultancy and innovative technology, with advisers and providers tending to specialise in each respectively,” he says.
“Advisers provide a variety of services to employers, ranging from full service and specialised advice to individuals through to provider selection only. This continuing flexibility – responding to the specific needs of the employer – and the need to work closely with the pension provider, remains crucial as we embark on the road through auto-enrolment,” Jenkins adds.
This means providers and advisers need to clearly understand and respect the roles they have in ensuring the smooth running of the auto-enrolment process for the employer and the employee.
Getting employers to understand the urgency of the project and the importance of starting the process well in advance of their staging date will prove crucial. “We want advisers to make sure employers are ready to take action. And that needs to be well in advance of their staging date,” says Smith. “We will need time make sure that they have made any changes needed to their pension scheme and aware of what they need to do from their staging date.”
Hopefully communication between advisers and providers should mean roles are clearly understood, although this is clearly going to be a developing story as auto-enrolment plays out. Processes and relationships that work today will evolve as employers coming on stream get smaller and exponentially more numerous.
“Ideally, the roles of advisers and providers will mesh so that there are no unforeseen gaps which would negatively impact employers,” says Downes. “Some advisers will wish to be much more involved with the auto-enrolment process than others. Our aim is to have a flexible approach with advisers so that together we can create a seamless solution for employers.”
But problems are inevitable and not everyone believes the adviser/provider relationship is going to remain cordial for ever.
McPhail is rather more sceptical as to the success of the partnership: “The provider’s role is to make sure all their systems work and to do what they are told. I am not confident they will manage to achieve that.”
McPhail’s view doubtless reflects a deeply held fear amonst some advisers that huge factors such as auto-enrolment, providers’ platforms and the Retail Distribution Review could see them becoming marginalised in the process as time goes by. On the plus side, with around a million new employers offering pensions, it is hard to see expertise in the field becoming redundant.
Whatever happens, providers and advisers are set to be inextricably linked in implementing auto-enrolment for several years. Setting out the terms of engagement clearly will be crucial.