Way back in 2012 the UK’s largest employers complied with their auto-enrolment obligations.
Four years on, it is now the turn of small and medium sized businesses. Some 480,000 firms will reach their staging date this year and may turn to their trusted financial adviser for help.
This month’s RP Inquiry asked advisers to share their thoughts on the market and more than 100 readers responded.
Some 69% of advisers said they had conducted auto-enrolment business while 26% said they had not. The remaining 5% of respondents said they hadn’t but expected to get involved this year.
Many advisers who said they had conducted auto-enrolment business were wary, to say the least.
“It is a nightmare that has barely begun,” said one. Another added: “It is a drain on our resources and a waste of time.”
One adviser commented: “I’ve set up one scheme, and it has been one too many.”
“There is far too much administration,” another added. “There is no money in it directly.”
Others said while they did not actively seek out auto-enrolment businesses they were helping existing clients. “I have used some existing GPP schemes and also new auto-enrolment providers,” an adviser said.
“Providers appear to be learning from earlier mistakes and the range of solutions is now much greater than it originally was,” added another.
“It is not a market I have particularly wanted to enter,” said one adviser who expected to do auto-enrolment business this year. “But a few clients with small staff numbers will need it. It is a matter of finding a simple solution that involves minimal adviser input.”
RP then probed adviser opinion on whether auto-enrolment business from SMEs is profitable enough to be worthwhile.
Almost half, 49%, said ‘no’; a third, 33% said ‘yes’; and the rest, 18%, were unsure.
Of those who said ‘yes’, many said they conducted all business on a fee basis and pointed out auto-enrolment was a foot in the door.
“The larger schemes have certainly been profitable with further work to be done on group risk and pension surgeries resulting in pension reviews for individuals and in some cases further planning for individuals.
“We have revised our proposition for the smaller end of the employers now due to stage,” explained one advice business.
Another pointed to other advice opportunities: “Key man, protection, group life are all areas to discuss with clients.”
A third was pithier: “We wouldn’t do it if we didn’t make money.”
Advisers who said ‘no’ were, unsurprisingly, less positive about auto-enrolment business opportunities. Many said it was very time-consuming and only profitable if it came with ongoing service.
“I can’t reasonably charge the employer for the total hours expended. However, it may be more profitable in the future now the procedures and practical problems solutions have been experienced.”
Another said: “It’s not profitable. There is too much compliance to make it profitable when dealing with micro businesses.”
“No one is asking which the best scheme is, just what’s the cheapest for me. Not the sort of client I look for,” said a third.
“They [SMEs] don’t want to pay for regulated advice. Accountants and HR/payroll can do it for less,” commented another.
The third question this month canvassed adviser opinion on master trust arrangements after The Pensions Regulator (TPR) warned they posed a risk to savers.
Some 34% of advisers surveyed said they had used master trusts; 37% said they had not used them; the rest (29%) said they had no opinion.
When asked if they agreed with TPR, 24% said ‘yes’, 47% said ‘no’ and 29% had no opinion.
One adviser commented: “The use of NEST is sound, I am not sure if the others will be here in five years’ time.”
A second said: “It depends on the master trust, doesn’t it? Many have sprung up to meet the perceived demand and to make money – this is where the risk lies.”
Others were more relaxed about this situation: “A lot of the regulation regarding auto-enrolment seems to be made up as we go along.”
“Most insured scheme members pay little attention to their plans until retirement. IFA’s are interested at the outset and if the retirement pot is sufficiently large to generate a fee.
“Master trusts provide better governance of investment performance and suitability between these events,” another commented.
Finally, RP asked advisers if they thought pension contributions would ever be made mandatory. (At present workers have the right to opt-out but are automatically re-enrolled every three years.)
The majority, 66%, said ‘yes’; 18% said ‘no’; and the rest, 16%, were unsure.
“As the state pension is phased out so compulsion will come in,” predicted one adviser. Another said: “The government cannot resist tinkering with pensions and this would be the next logical step.”
A third added: “I think it is the only way that we can go to ensure that the workers of today have income in retirement tomorrow.”
“It’s inevitable. After two or three opt out cycles there will be few stragglers. Administratively, it would be easier to manage compulsion,” said a fourth.
Advisers who didn’t think compulsion would be brought in raised concerns about affordability for the lower paid and issues around fixed protection at the other end of the scale.
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