An advisory industry ill-prepared to help clients with auto enrolment risks not only losing out on billions of pounds in revenue but will also be in the firing line when companies come a cropper with the new pensions regime, according to a study published today.
The report by the Centre for Economics and Business Research and commissioned by Creative Auto Enrolment, a provider of auto-enrolment solutions, reckons £2.8bn of revenue could be at risk for advisers who fail to prepare adequately for auto enrolment legislation. It also estimates that firms employing less than 500 workers – 99% of all UK businesses – will need to spend a total £15.4bn in auto-enrolment set up costs.
The study, ‘Finding our way out of the auto enrolment maze’, by CEBR economist Daniel Solomon, says auto enrolment provides a “huge opportunity” for the advisory market, with clients likely to need “substantial” guidance and support in navigating the new legislation requiring every employer in the country to enrol eligible staff in a workplace pension over the coming years.
Advisers operating in the accounting, auditing, financial management consultancy and employee communications sectors are just some of those set to benefit from an increased need for guidance from clients faced with tackling over 33 administrative challenges to get ready for auto enrolment.
While the study predicts that up to 10% of advisers’ revenue could be derived from auto enrolment-related activity over 2015- 2018, it also warns that advisory firms who perform poorly in the space could face significant risk to their income.
Companies in the accounting sector, which for the purposes of the report incorporates auditing, bookkeeping and tax consultancy, could have the most to lose, with up to £1.66bn of revenue at risk in 2015, rising to £1.86bn in 2018, when all businesses will have passed their auto enrolment ‘staging date’.
Combined with the revenue at risk for companies dealing with head office support, financial management and internal communications support, the total amount of at-risk revenue is estimated to grow rapidly, from £2.5bn in 2015 to £2.8bn in 2018.
Winners and losers
Creative Auto Enrolment is keen to stress that these figures do not “as yet” take into account the potential revenue opportunity – and conversely, the risk – for IFAs and HR advisers, whose role in helping clients will come into increasingly sharp focus as auto enrolment is rolled out over the coming years.
David White, managing director of Creative Auto Enrolment, says: “Auto enrolment isn’t just a big deal for businesses that need to meet the new criteria; it’s also very important for the companies advising them. It’s a great opportunity to help their clients with this daunting task and boost profits accordingly. But there is also a risk that if advisers are not armed with the right knowledge and advice for their clients, that they could lose valuable business.”
“Auto enrolment is approaching fast, yet many businesses have not thought about it yet. Advisers can add real value to their customers by saying ‘this is coming, here’s what you should do’. This guidance and advice is what will separate the winners from the losers in the advisory market over the next five years.”
Speaking to IFA Magazine, White added: “What we have to do is stop the threat of widespread chronic problems with auto-enrolment manifesting themselves. There is a lot of talk about auto enrolment in trade press, pensions press and so on, which is great, but we worry it is not yet on the radar screen of the people who will have to deal with this, UK businesses. The report aims to alert these companies and their advisers that the challenge is here, right now, and it is real. That is why we commissioned it.”
While there will be considerable focus on the report highlighting the risk to revenue for the advisory industry as whole, White is keen to address the problems ahead for advisers on the ground: “We at Creative Auto Enrolment are very clear from talking to clients and others in our industry that if the threat does manifest itself and businesses do get this wrong and are potentially fined, then they will be wanting some answers. Who will be in the firing line when these businesses pick up the phone, angry and wanting to know why they were not alerted, advised, helped? Clearly it’s going to be professional advisers…accountants, bookkeepers, IFAs, HR consultants: they will all be in the firing line.”
Auto enrolment has been rolling out across the largest companies but even for this well-heeled cohort there have been problems. In recent weeks The Pensions Regulator has revealed it carried out 89 investigations into non-compliance across this group and issued its first compliance notice against an employer for failing to register its pension scheme in accordance with auto-enrolment regulations. Many of the companies have also said the process was much more complex than they had imagine it.
“If that is the situation for big businesses, which have in-house pensions department, long standing relations with advisers, in-house HR departments, what on earth is going to be the impact on firms with none of those resources because of their size? Clearly, such businesses will be relying on their advisers to alert them to things, keep them legal.”
“In a world where for many UK businesses auto-enrolment is not at the centre of radar screen, and resources to deal with it are sorely lacking, I do not think it’s about the doubling the risk [of non-compliance], its squaring it.”
White cites the case of a very well know high street chain with 800 employees that recently ran into problems with auto-enrolment: “They called us, said the way they were planning it hadn’t worked. They were in distress because their staging date was 1 November. Now that is a company with 800 employees, it’s a national high street chain. Where does that leave the 500, 300, the 50 employee firms?”
He provides another example: “I had a very interesting call where the client said the payroll company was going to help it with auto-enrolment. So I spoke to the payroll company and it said: “Ah yes, we will do, once the client tells us what to do.”…. they were both waiting for each other.
“Now, somewhere in the middle of that, if it goes all wrong, there is an accountant, IFA or lawyer who is frankly going to get the blame. And what we are trying to say is, particularly to IFAs, is don’t let your relationships with your clients be threatened, there are solutions out there.”
Capacity, or rather the potential lack of it, is another major issue White believes is not fully appreciated. The CEBR report points out that some pension providers have already announced they will not be able to help businesses that are within a certain timeframe, for example six months, of their staging date. And this timeframe is reducing. Businesses will therefore need to ensure their chosen provider has the capacity to help.
The report says this is especially important when one considers the huge increase in the number of new pension schemes likely to be set up as a result of auto enrolment over the next few years, in contrast to the average number of schemes usually set up each year. “Providers ‘closing their doors’ to new business, and the need to find ones that can help, could further exacerbate the time needed to complete this stage of the process for employers.”
Considering the challenges ahead for IFAs in particular, White advises that they must firstly appreciate that auto-enrolment is still not as high on the agenda of small and medium business as they might think: “If it remains that way, and there is a problem, they could well be in the firing line.”
IFAs also need to appreciate that if they do not, or are unable, to help their clients with a solution, someone else will: “The client has to do this, there is no avoiding it. And if you cannot help that means, potentially, you are losing control of your relationship with client. You either take control or lose control.”
As a starting point, White suggests advisers get a list of their clients and understand when their staging dates are, and then talk to them about it all, in staging date order.
The sooner advisers, on behalf of the client, can move to considering solutions the better as leaving it late could result in problems: “There are providers out there but I think solutions will hit the capacity crunch wall at some point, so it’s important to figure out who can really help as soon as possible.”
Creative Auto Enrolment, a new company launched by employee benefits consultancy Creative Benefits to help businesses respond to the auto enrolment challenge, believes it offers a novel auto-enrolment solution: “We are very happy to team up with accountants, IFAS and so on, help them alert their customers, and provide a solution for them. And we have solution that we believe is the only end-to-end solution around,” says White.
In addition to carrying out the necessary set-up work to get ready for their staging date, Creative Auto Enrolment can act as a long-term partner, taking care of monthly ongoing duties including the categorisation of workers, calculation of pension contributions and communications with a company’s employees.