According to the Department for Business Innovation and Skills, at the start of 2011 there were 30,000 employers in the UK with between 50 and 249 employees. These companies will be commencing auto-enrolment in April 2014. I would like to believe that most of these employers are aware of their new responsibilities and are considering the implications for their business. Yet research carried out by the pensions industry and information gathered by HSBC’s commercial banking directors, shows otherwise. Whilst the majority of these companies are aware of the regulations, they don’t know the detail or how to manage this change. So what are the concerns of these businesses and how can we help guide them through this minefield?
HSBC’s SME customers tell us that market uncertainty and a lack of confidence in the future of the economy means they are putting investment decisions on hold. With increasing pressure on profit margins and a lack of skills in the workforce, auto-enrolment is seen as simply more employment red tape. However, despite concerns raised by small business organisations about the burden on their members at a time when the economy is so fragile, the Government appears to be sticking to its timetable. For advisers and providers within workplace pensions, auto-enrolment can present itself as an opportunity to help and advise employers on their new responsibilities. And with some time to go before most companies have to comply, we have the ability to enhance our proposition, plan and address the anxiety they have with this legislation.
In the pensions industry we have debated the pros and cons of NEST, yet the majority of businesses will not be worrying about selecting the most appropriate scheme or how to develop a compelling communications strategy. These questions are important but will be secondary compared to how they will administer auto-enrolment and whether their existing processes and systems can meet the challenges it creates. Their accountant can advise them on the financial implications this additional expenditure will have on their profit and loss account. Where they will need support from advisers is in the detail of the legislation, what they will need to do to comply and whether their exiting HR software can cope with the additional administration. Providers are already enhancing their systems to cope with these demands. Those who operate straight through processing and work from a low-cost base will have a head start in terms of meeting the new requirements auto-enrolment brings in terms of added flexibility and on-line management.
Concerns on opt-out rates remain high. Research from the NAPF revealed that 1 in 3 people are unlikely to stay in the workplace pension they are auto-enrolled into. Affordability was the main reason cited (48%) but 26% stated they do not trust the pensions industry. A provider who has a strong visible brand and an established track-record will go a long way with building trust amongst employees and their employers.
For advisers who are targeting SMEs, the key is understanding the pressures they face and then provide them with low-risk straightforward solutions. However, whilst the potential business may be high the profit margins are likely to be tight. Building partnerships with a provider who has experience and expertise in this area is crucial to offering cost-effective products and services to these clients.
HSBC’s SME customers want to focus on the opportunities presented by international markets, marketing through social media and becoming a leaner more focused organisation. They tell us they want to outlast the opposition and take advantage of competitors’ weaknesses, whether this is through product, pricing or customer satisfaction. Any adviser who can help them through the maze of auto-enrolment and keep them on track with managing their core business will succeed.
Paul Budgen
National Business Development Manager,
Workplace Retirement Services, HSBC
paul.budgen@hsbc.com 07717 432911