The introduction of auto-enrolment is creeping up fast. Getting ready for the changes is now critical, particularly as it will be landing around the same time as the introduction of the Retail Distribution Review. Larger employers, and those that choose to volunteer, will be the first to be brought into the new auto-enrolment world. (I do struggle to see why a smaller employer would be a willing volunteer, but let’s see.)
These new rules and requirements do make me think about the role of the financial adviser/benefits consultant, and the role of the product provider. There is a nagging concern that if we don’t get our roles right, employers may take the opportunity to “level down” to minimum required contributions or will just take the “easy” compliance option and ditch their existing scheme in favour of NEST.
Our research with employers says that they would prefer to adapt their existing arrangements to comply with the new rules, but until these employers know how easy (or difficult) we make the transition it’s impossible to be sure what course of action will be taken.
Levelling down, or just moving to NEST, would be a real shame for many employers (although arguably, not all). The schemes currently offered provide great investment choice, online functionality, governance, MI, a communications plan, and of course access to quality advice, depending on the adviser model. Whilst we don’t know for sure exactly what NEST will offer, I’m confident that it won’t be as comprehensive as a private arrangement.
To avoid the potential for levelling down or abandonment in favour of NEST, we need to provide a clear road map for employers, with the role of the product provider and the adviser understood.
Let’s look first at the role of the adviser. At present, many advisers provide a service to ensure that as many people as possible join the scheme. Whilst auto-enrolment will take care of much of this, there are always going to be a number of employees that may need a little education (or nudging) to prevent them from opting-out. We are anticipating that employee sign-up rates, after opt-outs, will grow to approximately 75% once the new regulations are introduced.
This should free-up time to do more of another vital adviser role – that of showing employees the benefits of paying more than the minimum contributions and consolidating their existing pension pots. This role is key if we are to help ensure employees retire on a decent income.
The adviser still has a key role to play with the employers. For example, is the scheme hitting its target? Do employees understand and value to benefits spend being made by the employer (don’t forget the role that Total Reward Statements can play in this)? Is the default fund still achieving what was intended and is it still suitable for the demographic of the employees? Is the employer complying with the new regulations? Have all employees joined the scheme on time? Who has opted out? When do they need to be opted-in again? Has the right level of contributions been paid for all employees? Pulling all this together for an employer in a meaningful and timely manner is going to be a key success driver in the new world.
So, what about the role of the provider? As well as the role of ensuring the proposition is up to date and future-proofed, service is up to scratch, and the investment choice and governance is in place, a vital role of the provider will be to help both advisers and employers manage their “compliance” with the new auto-enrolment regulations. The level of compliance services offered by advisers will vary from “none” to “total compliance support”, so providers need to be able to help and to fill whatever gaps are left.
Advisers need to be talking to their product providers about what compliance support will be available for the new auto-enrolment world. We believe that effective support in this area will be a critical success factor, and will soon become a hygiene factor.
But remember, make sure you ask providers now what their plans are. Things will become more complicated if a change of provider is required in the post Retail Distribution Review world. Head of Pensions, Aviva