As more and more employers will be required to undertake auto-enrolment, Angela Seymour-Jackson, managing director of workplace at Aegon UK, notes advisers will be asked to help both new and existing clients to select a scheme.
However, selecting a qualifying workplace pension provider is a non-regulated activity.
Some employers might not realise that auto-enrolment affects them, or think they have several years to sort it out, therefore Ms Seymour-Jackson says there is a great emphasis on helping your clients understand the new legislation and how it applies to them.
For some she says employers setting up could take up to 12 to 18 months, so it is essential to understand that this is not a quick process.
Ms Seymour-Jackson says advisers should ensure that schemes which they recommend meet certain legal and quality criteria, and focus on areas such as value for money, simplicity, effective governance, choice of investment options, transparency and the quality of the communications from the provider.
However selecting a scheme does not need to be difficult or time consuming, she adds.
She says: “Advisers are in a position where they can help employers make choices which meets both their needs and the need of their employees, whilst ensuring that any decisions that an employer makes now will have a significant positive impact on their employees’ future.”
To help employers and advisers the Pension Regulator has published a number of papers looking at the principles, features and benefits of a good pension scheme.
Should an employer wish to complete more detailed due diligence then they are able to engage an adviser to review the market for them.
Recommending the right qualifying scheme is important and according to Gavin Perera-Betts, executive director of product and marketing at Nest, the following criteria are useful for advisers to consider:
• how will a new scheme work alongside any existing arrangement;
• is the scheme suitable for those workers who haven’t saved in a pension scheme before;
• how does it invest their money and does it use clear language when communicating with employers and workers;
• how would any new scheme deal with large numbers of joiners and leavers;
• how easy is the new scheme to administer; and
• you should also ask about the scheme’s charges, how it will invest money on behalf of members and what happens when workers leave your client and the scheme – both in terms of administration and what happens to a member’s money.
Griselda Williams, head of business development at Trust Pensions, recommends the following as key considerations when recommending a scheme;
1) Is this a quality scheme? Who are the trustees? Who is the investment manager? Where are the assets held? Who is the scheme administrator? Does the scheme have master trust assurance, PQM Ready, or a Defaqto five-star rating as a stamp of quality? Is it providing information to scheme comparison sites such as Pensions Playpen?
2) How simple is the scheme to use? Is the sign up free, fast and secure? Does it incur employer charges? How easy is it to create the employee and contributions data reports to send to the pension scheme? Do they offer a dedicated account manager or just a call centre?
3) What are your investment options? What type of funds does the scheme invest in? Do they provide a rigid lifestyling approach or flexibly managed Target Date funds? Who designed the default strategy and who manages it day-to-day? What other self-select options are there that members might want to access – such as risk profiled funds, ethical or Sharia funds?
4) Who is managing the investments? Do you know where your money is being invested? Do you know who is managing these funds? Do you have access to information about the funds and their performance data? What risk control measures are there in place? How has the investment strategy adapted to consider the new pension freedoms?
5) Are you getting value for money? As a member, what are you getting in return for the fee charged to members? Is the scheme targeting high quality or low cost?
6) Who is your pension provider? What do you know about your pension provider? Are they using old or new systems? Are they selective about what schemes they accept or are they guaranteed acceptance? Who are the trustees responsible for the scheme (if a master trust)? Who is on the Independent Governance Committee of a contract-based provider? Where are the funds held? Who are the fund managers? Who is responsible for looking after your money and are they investing it wisely?
7) Who is providing compliant communications? Setting up a pension scheme is only the first step in the auto-enrolment journey. Going forward employers are responsible for ensuring they assess and communicate with their workforce going forward. They can do this in house, their payroll provider might do it for them, they might be using a middle ware provider, or their pension scheme could be offering this service. They need to know who is doing it, and cannot assume that it is automatically being taken care of by someone else.
In terms of what corporate clients value, research Now:Pensions conducted with 248 advisers earlier this year revealed ‘guaranteed acceptance’ was the most important factor for advisers when considering an appropriate scheme.
Guaranteed acceptance is where a provider will accept all legal applications for clients of its partnered payroll bureaux, therefore there is no uncertainty and no waiting, Now:Pensions said. It added that schemes are available within as little as two working days of submitting an application.
The research also showed that 29 per cent of advisers cited the level of charges as important, followed by the default fund quality at 16 per cent.
