Every dog has its day

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Maxwell

That is headline news if ever anything was about pensions (apart from the Maxwell stuff). So it is not just the Olympics and the cricket and the tennis we are upbeat about; pensions gets to have its day in the sun too.

But those of us who have spent the last seven or so years wondering how on earth we are going to get the employees of SME and micro firms to engage with auto-enrolment and get pension-happy know the hard bit is still to come. There are three auto-enrolment challenges: the large employers, the SME firms and the so-called micro-employers. Of the 1.3m employers who are duty-bound to implement auto-enrolment of their eligible employees into workplace pension schemes the vast majority, nearly 1m, have fewer than 10 employees. Auto-enrolment has got more to do with chip-shops than national supermarket chains.

Phasing auto-enrolment starting with the largest employers and ending with the very smallest never seemed sensible to me, especially as the phasing lasts over so many years. The employers most likely to be already running pension schemes got to go first while those most likely not to have any workplace pension in place get to go last, meaning millions would miss out on crucial years of pension saving while they waited their turn in the queue.

The idea was that valuable lessons would be learned from the staging of the large employers that would trickle down to help the SME and micro firms. But surely that was never serious? The main lesson learned so far, and this report and that of the Pensions Regulator bear this out, is that where firms already have experience of running pension schemes and have departments of CIPD-qualified human resource professionals tooled-up with sophisticated HR software systems - who are also able to call on external professional help from benefits consultants with access to sophisticated middleware - then auto-enrolment is a piece of cake.

Where it will not be a piece of cake will be when it hits the cake shops on the high street.

Having proved that large employers who already have pension departments and decades of experience of running pension schemes and communicating with their employees about workplace benefits in general, can top-up voluntary scheme membership with something much akin to compulsion we now have to get on with the real job of rolling out auto-enrolment in the real world.

By April next year every firm with 50 or more employees in the UK will have been served their one-year notice of auto-enrolment by the Pensions Regulator. It is as such notices have been hitting the doormats of firms with between 250 and 500 employees over the last few months that most IFAs have begun to wake up to what is about to happen.

From here on in the auto-enrolment reforms will begin to tear through adviser territory and advisers will be involved in the so-called ‘corporate’ market whether they planned to be or not. That will step up a gear, big-time, when the first micro-employers (defined as having fewer than 50 employees) start to get their one-year notices from the regulator. For those who take comfort in the fact that all of this is years away I would point out that the first micro-employers to get their one-year notice from the regulator will get them in just 10 months’ time. Yes, you heard that right, 10 months’ time, in June next year. This market is moving quickly and will come and go in the blink of an eye.

While the DWP and all the authorities are breathing their collective sigh of relief and patting themselves on the back following the success of the reforms so far the SME businesses are fast getting to their staging dates and the first micro-firms are soon to find out that ‘years away’ is not as far in the future as they thought.

I will put my cards on the table here. Without underplaying the seriousness of this and without misunderstanding the enormity of the task ahead of us, I think advisers can help make the SME statistics of the future something for the DWP to shout about too. I see no reason why the opt-out rates for SME firms should not be as good as, or even better than, the figures achieved by the big firms with their big resources and big money. And it would be good if we could send out such a strong message to government and everyone else from the IFA community. The theory that seems to form the basis of most of the press comment on this topic appears to me to be that employees of large firms will value their pensions and stay in once enrolled, but employees of small firms will not and will opt-out in their droves. I could not disagree with that more.

Half the workforce in the UK has always had pension schemes available to them at work. That is the half that works for the small number of large employers. The other half, those who work for the large number of small employers, have never had company pensions made available to them, nor would they ever have had unless radical reform like this was undertaken. The Stakeholder debacle is testament to that.

Half the workforce since the early 1960s has had to rely on an ever changing, heavily bureaucratic and depressingly complex state second pension scheme to top-up their dwindling Basic State Pension rights. Well no more. From now on they too will have access to straightforward workplace pension schemes that will be backed by money and not political promises. I think they will value pensions more than their counterparts in the bigger firms. It is as simple as that.

Schemes

The task is, of course, enormous. Tens of thousands of SME firms across the country will need to establish pension schemes for their employees for the first time ever and learn quickly how to communicate with their employees about this stuff for the first time ever. No mean feat. And something that simply will not happen without the hands-on help that advisers can provide. The same advisers that all research said will be the first port of call for employers when the auto-enrolment reforms appear on their radar.

So I do not think we should pay too much heed to what the official reports say about the success of these reforms so far. We should instead take the 9 per cent opt-out rate as a benchmark and set out to beat it. What if advisers, working closely with their employer clients and their employees show everyone else what is what by achieving a 5 per cent or lower opt-out rate as the SME firms and their employees get private sector pensions for the first time?

That really would be something to write about.

Steve Bee is founder and chief executive of Jargonfree Benefits

Key points

- The opt-out rate is far lower than expected.

- The first micro-firms are soon to find out that ‘years away’ is not as long off as they once thought.

- From now on small firms too will have access to straightforward workplace pension schemes that will be backed by money and not political promises.