This year, above all others, we have so much opportunity and challenge in the pensions industry. Most pleasingly, the direction of travel is undoubtedly to ensure more “average consumers” have better outcomes and an acceptable standard of living in their old age.
Auto-enrolment is of course the biggest show in town. The largest employers have now staged and opt-out rates have been much lower than expected. Next comes the “tsunami” of small to medium sized employers who have to review or initiate a pension for their workforce.
Nearly 30,000 employers, between 62 and 250 employees each, are expected to reach their staging date in the four month window April to July next year. This represents unprecedented volume and unprecedented challenge and opportunity for our industry. The number of employers to serve only grows from there.
Of course, not all employers will seek advice – or be prepared to pay enough for it. But insight, including Standard Life’s own independently commissioned research, reports that the vast majority of employers next year will be looking for a guiding hand to ensure they meet their regulatory requirements – and they’ll be prepared to pay for it.
This seems logical, when comparing the average cost of initial advice in this area (which might range from £4,000 to £7,000) to the late penalties of c. £2,500 a day that the Pensions Regulator has said they’ll impose.
So from an adviser’s perspective, which is it: opportunity or threat?
We asked 41 leading corporate advisers this at the CA Summit. 29 said it was an opportunity, 1 a threat and 11 a combination of both.
The 70% in the “opportunity” category said they can adapt to cope with this volume of demand. Typically, they were advanced in designing a packaged proposition (with as few decisions as possible to achieve compliance), updating their business model, applying segmentation of employers and offering a menu of options.
Of course, there was also recognition of the employers’ other key driver – to ensure they don’t land their employees in a “duff” scheme and regret it later. So whilst a package solution is crucial, it can’t be at the expense of quality for employees.
There is much focus on lowest possible charges at the moment, but the advisers recognised this is only one important factor in achieving the best possible member outcomes from the solution chosen. When we look back in many years, it will be the end outcomes for consumers which determines whether auto-enrolment has been a success. So the ABI’s initiative to measure overall value (not just price) was widely welcomed.
“Opportunity” advisers were also attracted by the future services they could provide – whether ongoing advice on the pension, individual wealth advice for company directors or support regarding wider benefit provision.
Those who saw SME auto-enrolment as a threat, at least partially, were concerned about how to make it work: Would they be able to offer a service that is sufficiently cost-efficient? Would providers be capable of providing enough capacity? Can payroll providers support clients to get the data they need quickly enough? Is employer tardiness or regulatory instability going to be a barrier to success?
It will be fascinating to see how the industry evolves to cope with these challenges. Those who can innovate and build scalable processes with high quality solutions will be best positioned.
Such firms may well prove those advisers right who concluded this is a huge opportunity not to be missed.