With the auto enrolment staging process coming to an end, it is easy to think the greatest opportunities are past. Personally I think the direct opposite is true. This is the moment when auto enrolment really starts to get interesting and creates major new advice opportunities.
It is hard to think of any initiative in the savings industry that has ever been more successful in bringing new customers into the market. There are now 9.4m consumers saving for their retirement .
The schemes into which they contribute are no longer empty shells. They now have substantial invested assets. Potentially these schemes should soon be far more attractive for competing pension providers. Some may wish to offer better terms than provided by the original auto-enrolment provider, who will have priced based on having to incur the initial cost of staging employers and members who, at the time, had no previous experience of auto enrolment. Employers are now far more adept at handling their obligations.
In many cases the original pension providers will have based their calculations of how much they need to charge on the expectation that they would hold the schemes for many years. Consequently they may be reluctant to offer any significant reductions in charges. I am already hearing anecdotal evidence of at least some pension providers looking to maintain the charging level at which they originally took on the scheme, rather than adapt to current market pricing. If alternative providers find it attractive to offer better terms to schemes that have now built up worthwhile levels of assets, this could translate to benefits to members.
As I see it the challenge for the switching market however is going to be how to persuade employers it is worth paying a corporate adviser to conduct a review and implement the switch. The key to this probably lies with identifying where a new provider will provide better service to the employer and reduce the burden of processing monthly contributions, joiners and leavers.
Some workplace pension providers have created great systems to make it really easy for employer’s staff to meet their various obligations – others to put it mildly have not. There have been widespread reports of some providers, both contract and master trust, experiencing major administrative problems. These schemes will almost certainly be low hanging fruit for any adviser who wants to operate a service to help find better member terms and employer service. Equally if there are other circumstances where the ongoing long-term commitment of a pension provider to the market may be in question there may be a strong case for considering a transfer.
In reality we will not really know the full potential of auto enrolment schemes to hoover up large amounts of long term savings until late 2019 when it will be possible to understand the full impact of opt outs as a result of member contributions increasing by as much as five-fold. At this point it will be possible to have a clear understanding of the long-term economics of these schemes.
There is a huge opportunity for advice firms who can build robust processes to deliver governance and review reports to employers which can identify those schemes able to offer the best outcomes for members and operational efficiency for the employer.
This is a classic case for use of technology to deliver detailed reporting. Services like the Workplace Robo Paraplanner we have built at F&TRC can drastically reduce the cost to advisers of generating such analysis and are well placed to help advisers who wish to capitalise on this opportunity. Similarly Origo has recently proven that its bulk transfer capability can facilitate the movement of schemes between providers with a minimum of fuss, so this need not be a barrier either.
Creating a competitive environment amongst pension providers for established auto-enrolment schemes must be a good consumer outcome and while I expect it will be resisted by some pension providers who thought they were buying schemes for life, this is a great way for corporate advice firms to demonstrate the real value they can deliver to both employer and member.