Smaller firms may be reluctant to use advisers in the run-up to auto-enrolment, writes IFA Sheriar Bradbury, but if commission still existed...
With planning for retirement at an all-time low, the government's introduction of auto-enrolment has sought to shake up the way people view pensions and help push the country towards retirement saving.
But while that is all very well and good for your average worker, there is no denying this will prove an administrative nightmare for the smaller companies out there.
With the very largest companies now enrolled, the pressure is on small and medium-sized businesses across the country to get themselves into gear. Medium-sized employers with staff of between 50-249 workers will be expected to start enrolling their workers from April 2014 to April 2015. Small employers will follow suit from June 2015 to April 2017.
The Pensions Regulator has recommended that companies start to prepare around 12-18 months before their staging date, but how realistic this is remains to be seen.
I predict we will see big bumps in the road as smaller companies grapple with unfamiliar territory. Large companies have transitioned seamlessly but they will have been well versed on the subject of pensions and many will have a designated pensions department in place.
In contrast, small and medium-sized companies will likely be ill-equipped to deal with what is being asked of them. The complexity of the system and the different bandings and staging systems will make payroll a much harder part of the business to contend with.
We are a country that has put much emphasis on encouraging smaller enterprises, but asking of them the same as we do of the bigger guys will simply be too burdensome.
By their very nature, smaller companies tend to have smaller systems and fewer people, and may not even have an accounts department, so to implement auto-enrolment will be a huge effort and an administrative nightmare.
In order to overcome the hurdles, many will need to employ the services of a financial adviser, however some will be reluctant to do so simply because they do not want their bank balance to take the hit. If commission still existed, I believe it would do more to encourage companies to work with advisers as they would not be expected to pay upfront.
And let's not forget the adviser in all of this; many will wish to edge away from the very small clients who suffer a high staff turnover.
Of course, for those who do not comply there will be a fine. The regulator has the power to issue a fixed penalty as well as an escalating daily rate set at the same level of the cashflow benefit they gain from non-compliance.
In my opinion, there should be more onus on providing information to the small and medium-sized businesses to help them understand what they need to consider in the run up to their staging dates and how to go about it.
While it is a great idea to get the country motivated to start saving towards their later years, we should not ignore the fact that, for many companies, this will be a very difficult time and they will need support and guidance to ensure they remain on track and make this the success the government was hoping for.
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