As auto-enrolment changes the relationship between industry and consumer, JLT Employee Benefits' Martin Freeman assesses the new responsibilities for advisers
Workplace pensions are no longer a discretionary choice for employers or employees.
Before auto-enrolment, 84% of employers saw no compelling reason to provide them and only 39% of employees were saving in one, according to the Department for Work & Pensions. Now we are all in.
But this is not just about market growth, this is about compulsion and a duty of care to the ten million or so individuals who will have pensions thrust upon them.
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This turns pensions into something akin to a public utility, like the electricity or railway industries.
In this model, there is universal access to the service and a national, interoperable infrastructure.
There may be multiple operating companies but there is often a quasi-monopoly. Consumers have little engagement with, or understanding of, the service and expect it to just work. Only if it does not will they take an interest.
Consider the implications of this. As an industry, it means we will be under greater scrutiny than ever to be worthy of the trust placed in us. We must be responsive to consumers' needs and always act in their interests, even when they are unaware of it themselves.
Against this backdrop, tighter regulation and increased legislative requirements seem to follow inevitably. The price of government sponsored market expansion is its greater intervention.
From the employer's perspective, pensions are now a compliance issue, a cost of doing business. This totally changes the dynamic between advisers and their clients.
In the auto-enrolment market, pensions are not about reward strategy or employee engagement. They are a hygiene factor and the employer is looking to minimise the risks of non-compliance and reduce the burdens of implementation.
The traditional role of advisers to increase scheme membership and contributions is diminished. Getting people to save more is still pertinent but less viable in an auto-enrolment, post-Retail Distribution Review world.
In the auto-enrolment market, the value from advisers comes from their ability to help employers comply with regulations effectively. In some ways, this is an easier conversation to have in a fee-based environment. It is potentially easier to articulate the value of compliance than the value of corporate pensions services.
Incidentally, looked at from this perspective, the ban on consultancy charging for auto-enrolment schemes appears incontrovertible. If an employer carries out a workstation assessment to comply with health and safety regulations, they do not pay for it by docking the employee's wages. So why should they take the cost of setting up a workplace pension scheme to comply with auto-enrolment regulations out of employees' pots?
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