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Retirement and Auto Enrolment - October 2013As the topics of retirement planning and pension provision come into sharper focus for both individuals and their employers, with industry reports and changes to legislation ensuring it is often in the news headlines, advisers are being encouraged to consider how best to adapt their propositions so as to offer optimum service and support.
With auto-enrolment representing a marked shift in the pensions industry in this country, this area deserves particular attention for those advisers dealing with employers that are either going through – or are set to go through – the process.
According to Lynn Graves, head of new business development for corporate pensions at Scottish Widows, the provider is well placed to be able assist advisers during this period of transition, offering an insight into what exactly is involved in auto-enrolment, what the potential pitfalls might be in terms of the adviser’s role and the opportunities that are present during such a challenging period in the industry’s history.
“As a provider, we now have in excess of 100 clients who have started going through the auto-enrolment process and we have gathered quite a lot of insight to help and support advisers who might be starting to have early conversations with clients who might be staging next year. While the theory is one thing, the reality can be different and it is helpful to be able to learn from our experiences,” Graves says. “We have developed our own solution that employers can use for auto enrolment as well as a range of guides and tools that can assist in those early stages.”
Scottish Widows has developed a range of models that can be used by employers, although Graves notes that, as they continue to move through auto-enrolment, the trend is emerging of employers tending to default to a handful of options, looking for the most practical solutions rather than additional features. It is about using the early stager experience to help identify best practise, as well as working to streamline the range while maintaining flexibility.
“As the common theme of employers looking for the most simple and practical options has emerged, we have been able to build that into our systems and provide a more standard approach,” she says. “That decision has been very well received by clients, who have expressed a sense of relief that, while it can seem complex, there are ways to make it simple. This message of simplicity is something I’d encourage advisers to take on board.”
More generally, Graves believes advisers need to assess the exact level of service they can offer to both employees and employers embarking on auto-enrolment and how that fits in with their broader post-RDR proposition. She raises concerns that changes to remuneration models and a move towards flat fees could prove problematic when moving into advising in this area.
She says: “From our perspective, advisers have long been focused on the provision of a high level of service to employees and they now need to consider the service for employers. Employers are facing into highly complex legislation and there is certainly a big role advisers can play in supporting them through that. Some of the things they may have done in the past may now not be a key priority, with employers keen instead to make sure they hit the staging dates when they need to and ensure they are compliant. Advisers can also play a role in raising awareness of what employers can expect from them and from providers at the different stages.
“Moreover, while advisers have put a lot of time and effort into working on a robust post-RDR proposition, in some instances we are seeing that has to evolve further. Rather than just considering the advice and guidance for employees, they need to take on board the different needs of employers and the amount of time and work they may take to service. Most importantly, they need to think about how that service aligns with the fee model. In the worst case scenario, if the work required is a lot more labour intensive than initially thought, the adviser could end up out of pocket.”
Graves suggests breaking down the end-to-end journey of auto-enrolment, looking at the individual responsibilities that could be included within an adviser’s service proposition and then charging appropriately and realistically. She also encourages advisers to consider developing a more general proposition, perhaps adding additional services that are structured and charged for separately rather than all through a flat fee.
“The single biggest thing that will determine the amount of work is the quality of the data the employer has got,” she adds. “If the data is not very good or is inconclusive, the adviser might find themselves tasked with gathering additional data and, depending on the size and complexity of the scheme that may take a lot of work, tying up resources that could be employed elsewhere.”
In terms of the role providers such as Scottish Widows will play in supporting both employers and employees, engagement and education are both key. Indeed, in the most recent addition of Scottish Widow’s Workplace Pensions Report, which is based on responses from 5200 participants, as well as additional research with employers, it showed that awareness of auto-enrolment and what it can offer individuals had increased from 39 per cent last year to 65 per cent this year. Encouragingly, the majority of respondents (65 per cent) thought auto-enrolment was a good thing.
“Anecdotally we are seeing those employers with the best levels of communication having the lowest opt-out rates, so there is a clear benefit to making sure employees are made aware of what auto-enrolment involves,” Graves says. “Overall, last year we were predicting an average opt-out rate of around 11 per cent, which at the time was seen as relatively optimistic, with most commentators predicting around 30 per cent. The Department of Work and Pensions has now come out with a figure of 9 per cent and we have modified our outlook to between 8-9 per cent. The challenge will be maintaining that level for smaller employers and providers have a big role to play in supporting employers with that.”
Interestingly, respondents were keen to seek advice on the subject of workplace pensions, with 94 per cent of employees keen to have financial education or advice in the workplace, primarily covering pensions. In terms of other education and the provision of information, the survey included a section looking at the channels employers use to communicate with employees and the methods employees would prefer. While face-to-face meetings came out on top for both, 70 per cent of employers provided them while only 30 per cent of employees preferred that method. Indeed, cheaper and more efficient channels were also popular with employees, with email (30 per cent), posters (28 per cent), company intranet (24 per cent) and leaflets (28 per cent) all rating highly.
“Our findings show an integrated communication campaign using multiple channels can help make sure the key messages are getting through and maximising levels of engagement with the topic,” Graves says. “It is important too for providers and advisers to deliver education solutions, whether that is through online portals, webinars or face-to-face sessions. Educational tools, such as the Scottish Widows mymoneyworks online financial education and guidance tool, are also invaluable.”
Lynn Graves is head of new business development for corporate pensions at Scottish Widows