Auto-enrolment is fast approaching for many small- and medium-sized British businesses. It is already up and running for large businesses whose staging dates have been and gone.
However, despite widespread discussion around the legislation and what it means among those of us in the financial services industry, it seems that many businesses are still blissfully unaware of what is around the corner. We receive a ‘distress’ call a day, some of which are from businesses that need to be auto-enrolment ready in the space of a fortnight and have yet to start the ball rolling.
Those businesses that do have auto-enrolment on their radar will realise what a huge task they have on their hands. With our figures from the Centre for Economic and Business Research (Cebr) showing that preparing for auto-enrolment involves 33 different tasks, which could take up to 103 man days in total, it’s a big challenge for businesses to undertake.
And that’s without considering the responsibility of choosing a pension scheme for employees and the looming capacity crunch. With 38,000 businesses all required to enrol their eligible employees into pension schemes during 2014 – an unprecedented market demand – it’s very likely that the market will be unable to cope with processing so many applications at once.
So what does this mean for IFAs and other professional intermediaries? Auto-enrolment provides advisers with a huge opportunity to make a real difference to their current and potential clients, which means it also poses a risk for those who aren’t prepared.
The opportunity
The sheer magnitude of the task of getting ready for auto-enrolment means that many business leaders will want professional advice. Put simply, those IFAs who are able to guide businesses through the process effectively, and select quality pension schemes while avoiding capacity problems, will have happy customers. And developing a reputation as a sound auto-enrolment adviser will only have a positive impact on winning new clients.
Many employees who are automatically enrolled into a pension scheme are also likely to seek professional advice to discuss their contributions and the additional options available to them to supplement their retirement income. Successfully advising a business will open the door for advising its employees too.
The risk
With every employer in the country required to automatically enrol all their eligible employees into a pension scheme, advisers cannot get auto-enrolment advice wrong. If an adviser is unable to help a client prepare for auto-enrolment and get in the queue for a solution, there are two possible outcomes. Number one is that someone else helps them; number two is that no one helps them and they receive a potentially hefty fine for non-compliance.
Either way, as trusted business advisers IFAs are in the firing line. Inadequate preparation for guiding businesses on auto-enrolment is going to be a serious threat to IFAs’ relationships with their clients and indeed their reputation and ability to win new customers too.
In monetary terms, the figures are certainly eye opening. Our Cebr data estimates that if the advisory market gets auto-enrolment wrong, a total of £2.5bn of revenue will be at risk by 2015, when all medium- and large-sized businesses will have staged. This is expected to rise to £2.8bn of revenue by 2018 when all businesses will have automatically enrolled their eligible staff. That’s a significant chunk of income to potentially lose out on.
Many businesses are fast approaching their staging dates and not complying with the legislation is just not an option, with potential fines as high as £5,000 per day. It’s therefore prime time for IFAs to grab the opportunity that auto enrolment brings with both hands. Advisers must either take control or lose control – it’s those who help their clients through the auto-enrolment maze that will be the ones who reap the benefits.
David White is managing director of auto-enrolment consultancy Creative Auto-enrolment.
