Better Business: Pension reform and you

With radical pension change less than a year away, Julian Webb, head of platform sales and DC business at Fidelity International, looks at the implications for advisers.

Auto-enrolment was rubber-stamped by the Department for Work and Pensions’ review in October last year and will be implemented as planned in 2012. The proposed changes offer advisers some unprecedented business opportunities in the corporate pensions market.

What does it mean for advisers?

So what is the relevance of these reforms to advisers? In short, I believe advisers will perform a key role in helping both employers and their employees to make the right choices.

For employers, firstly, it is important to realise the responsibility for implementing auto-enrolment lies completely with them and failure to comply is likely to be very costly. The key initial task for all employers will be the question of which QWPS to select.

Essentially, there are three choices available: adoption of the government’s own NEST scheme; continued use of the company’s existing pensions plan (assuming one is already in place) along with any appropriate modifications; or a brand new private pension plan that meets all the requirements of being a QWPS. Advisers will be able play a key role in helping employers decide upon the merits and potential disadvantages of these three alternatives.

While NEST will be the simple, low-cost option that enables fulfilment of the bare minimum legal requirements, it is unlikely to be the best option for all employers. For example, many employers already recognise that the quality of a company pension scheme and the generosity of its provisions can be an important point of differentiation when looking to recruit and retain high calibre staff.

With NEST effectively becoming the minimum entry-level benchmark, greater competition and interest may therefore be spurred in terms of the types of benefits that are made available in private company pension schemes.

Beyond the NEST

If an employer decides on something different to the basic NEST option, advisers could play a key role in terms of explaining the changes that need to be made to an existing pension scheme or the key requirements of any brand new company pension scheme that is to be set up.

Some employers could be interested in asking their adviser to conduct market reviews to select the best pension provider, or see whether an existing provider is meeting requirements. For many employers, a very important and perhaps decisive factor will be the additional costs of all the available alternatives; advisers are likely to be called upon to provide estimates and to undertake cost-benefit analyses.