It is becoming increasingly clear that the pensions community faces a major crisis in the next few months as the number of firms needing to autoenrol outstrips the resources available to facilitate them. It may be time for a major change in thinking among advisers about how best to support employers, and who their main business partners should be.
Almost daily, I come across firms that are struggling to place workplace schemes for employers with staff numbers that would normally have been very attractive for insurers.
Part of the problem is there are not enough skilled scheme establishment technicians to support all the new arrangements being created. Not surprisingly, salaries are escalating for those with the requisite experience. These staff should make hay while the sun shines. After the auto-enrolment surge, there may be a fall in demand for their services because schemes may be more resistant to switching suppliers, due to the extra upheaval of migrating auto-enrolment systems.
Upward salary pressure puts an added burden on the margins at which business can be written profitably. While the great and the good of the consumer lobby – and many in the pensions industry – may demand lower prices, simple laws of economics dictate that if demand seriously exceeds supply, charges will rise. Yes, some investment management charges are scandalous, but pension administration costs money too and the complex rules around auto-enrolment have increased such costs. While no major pension provider has yet said it is increasing charges, there is clear evidence that pension providers are, rightly in my view, turning away business they cannot write economically.
Part of the solution is to maximise use of technology to minimise the need for human intervention. But those being auto-enrolled are people too, so it is impossible to entirely remove human error. There needs to be a person involved who can interact with members in complex situations. However, this does not have to be face-to-face contact.
A major part of the problem is the assumption that when addressing a scheme that might involve multiple pension providers, advisers will first turn to the private provider offering the superior scheme for senior staff to process the auto-enrolment and then pass any members not being offered the private scheme to a master trust or similar alternative provider. The problem here is that the private provider is expected to process large numbers of members, who they just pass on to the master trust.
If the provider receiving the largest number of members carries out the auto-enrolment process, or an independent auto-enrolment supplier, the private pension provider needs only to service those members for whom they are receiving contributions. This should significantly reduce their costs and make such arrangements more profitable.
In the run-up to auto-enrolment, the master trust community as a whole did little to endear itself to advisers, but I see real evidence that the role of advisers is now seen as increasingly important by such organisations.
There is a clear need to build trust, which brings me to one organisation that certainly seems to be talking a lot of sense – Now: Pensions. Backed by ATP, the largest pension fund in Denmark, the company says it is able to facilitate exactly the sort of arrangement I have described, where it will conduct the auto-enrolment and pass some members’ data to other schemes, which can then facilitate their collection process.
Presently, Nest does not have the technology to facilitate auto-enrolment processing in the way I have outlined and, as I suggested last month, it needs to start delivering the same level of support for advisers as private providers if it wants the adviser community to treat them equally. If Nest plans to do so, it would be well advised to provide for such an approach.
This is not just an issue for Now: Pensions and Nest, but for the whole master trust community. As we look back at the first six months of autoenrolment, there are clear lessons to be learnt about how we organise the technology and other services to support employers. There may be a temptation to say that just because money has been spent, people should use systems as they are. In the long run, this will be a false economy. It is time to implement the lessons learned if we are to optimise efficiency.