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The auto-enrolment world is coming closer by the day. Soon the London Olympics will be over and it will be October and our new pension reforms will suddenly start to look real. By the time we get to the Rio Olympics nearly every one of the 1.3m employers in the UK will be running a workplace pension scheme for their employees.
These reforms have seemed a long way away for a long time now, but the massive task of building over a million new workplace pension schemes and making sometimes substantial changes to all existing schemes will soon be all anyone in our industry talks about. The next five years will go by in a flash and it will only be after the event that we will look back and realise what fundamental changes have occurred.
The changes will not just affect employers; the UK IFA community will be transformed by the combination of the pension reforms, the RDR and something called ‘real-time information’. This last one you may not have heard of that much, but you soon will.
The UK IFA community will be transformed by the combination of the pension reforms, the RDR and something called real-time information
I think all IFA firms will in some way or other need to change their business model to cater for the real needs of employers as these fundamental changes affect them. Product distribution, a big part of what IFA firms have been involved in in the past, will not be so important in the future. Indeed, products will not be important in the future. Products in my view will soon be as relevant to people as floppy disks are today.
Workplace pension schemes will be necessary, of course, the law says you have to have one, but workplace pension schemes that do not engage with techno-savvy employees will not be any use to anybody. While we are building these million new pension schemes we will need to take account of the fact that people have changed and if our industry does not understand that and change too it will see new entrants come into the workplace with pensions and workplace benefits that people will prefer to engage with.
There have been plenty of reports in recent years that demonstrate that employees who are in the existing company pension schemes we have in the UK are not particularly well-informed about the value of their pension benefits. Many pension scheme members have no idea what their employer puts aside for their pensions every month, or even that they put anything aside at all. What I am saying is I do not think the pensions industry has done a particularly good job thus far of engaging with employees. It is easy to see why it is more convenient for corporate advisers to concentrate on the employer as their client and not the employer’s employees. Easy to see, but also easy to see why that is the opposite of what the industry should have done.
When we are distributing these million new schemes over the next five years or so I do not think we have many lessons to learn about how to do it from the existing pensions industry. IFAs have a golden opportunity to engage with employees in the workplace and distribute pensions and other workplace benefits that genuinely engage with employees and get them turned on to the whole idea of managing many of their financial affairs through intelligent systems provided by their employers.