Auto-enrolment - the countdown begins

With a year to go until auto-enrolment kicks in for the largest employers, Fiona Murphy finds out how advisers are preparing

Never mind the 2012 Olympics. ­Implementing auto-enrolment will be a Herculean task. In less than a year's time, large employers are ­required to have a compliant ­pension scheme in place for all qualifying employees. 

They have the choice of either keeping their current pension ­arrangement in place or else opt for an arrangement offered by ­providers such as the National ­Employment Savings Trust (NEST).

With the finish line in view, you would expect advisers to be ­engaging their clients now and putting a strategy in place. So how are advisers preparing for the changes, and what hurdles do they and their clients face?

Race against time

At NEST's soft launch, industry buzz reiterated that companies are under-prepared. It seems too many are avoiding the issue - they think a year is a long way off or the advent of auto-enrolment will never come.

Many companies underestimate the sheer amount of work needed to implement the changes, which Tom McPhail, head of pensions research at Hargreaves Lansdown, attributes to companies who lack a "­substantial HR approach".

He predicts an "almighty ­scramble" as many employers take up their duties at the last minute. Those seeking advice are in a much better position, but advisers still have to untangle many client concerns.

The biggest advisory challenge is combating confusion. Ian Price, divisional director for pensions at St. James's Place, has encountered employers "perturbed" by the tidal wave of change. He explains: "They just don't know what they have to do. They're concerned about what needs to happen."

Advisers have to lay rest to these fears in a number of ways. They have to be nimble in their approach and adapt their advice tools accordingly, per client. Price was recently asked to speak to a group of charities about auto-enrolment. He says they were worried about taking on extra costs and responsibility.

Often, retirement planning can be a mystery across the board for non-pension specialists, even for clients you would ­expect to be savvy with financial ­planning.

As McPhail points out: "Even among ­financial directors and HR managers, there is sometimes a fairly low level of familiarity with these issues."

So, the key is to look at the challenges for each client in a number of ­different yet often overlapping areas.

For those who are preparing adequately, advisers are focusing on scrutinising employee populations at this moment in time.

As Peter Woods, partner at PricewaterhouseCoopers identifies, the success of auto-enrolment for clients is determined by "ensuring the right people are in the right scheme on the day".

But what does he mean by "right"? The answer lies in the many different possibilities advisers have in assisting employers to set up schemes.

Take, for example, a chain of pubs. They could have head office staff, split into senior management and clerical. They then employ pub managers, bar and kitchen staff. The lower-earning bar staff may never have joined a pension scheme before, but they will have to be enrolled. In this case, the adviser may suggest different layers within the pension schemes for the different categories of staff.

Or, if there is an existing arrangement in place, such as a SIPP or DC plan for the executives, an adviser could set up NEST while ­reviewing whether the current scheme ­adheres to the rules of auto-­enrolment for those employees.

The combinations are endless. Industries used to seasonal staff or high volumes of ­employee turnover could use NEST as - what Andrew Cheseldine, principal of Lane Clark & Peacock LLP, ­describes as - "a nursery scheme".

NEST would be a precursor to another arrangement to ensure ­employees are saving for their ­pension, during a probation period, or if and when they are in work.

In addition, this approach is ­suitable for the employees, as the pot travels with them and they change jobs.

It will be fascinating to see how heavily employers involve their ­advisers, and how they cope with delivering large-scale solutions. These relationships will be magnified, too, in the light of the RDR changes, which will also be rolled out in 2012. 

It may not be financially worth an adviser's while to work on NEST after the initial guidance stages. In tandem, the client may wish to run the user-friendly systems themselves, without adviser intervention. There is a lot to think about, but advisers are still in the early stages of planning.

Adviser ­approaches

Advisers need to be au fait with the new rules before they can pass on communications to anyone else. For some, this has been a struggle.

Graham Vidler, NEST's director of communications and engagement, welcomes strong relationships with ­advisers to ensure they get it right and provide the right solutions for their clients.

In the early stages, many ­confused auto-enrolment with NEST. But Vidler is now confident the advisory community is over those initial stumbling blocks and thinking progressively about "how they and their clients deal with the detail".

Alongside conducting joint seminars with NEST, Hargreaves Lansdown is actively communicating with clients and outside businesses to raise awareness of auto-enrolment. As McPhail says: "We're acutely aware if we don't get started on it now, a lot of businesses could end up getting caught out."

It is right to engage with ­people outside of your client base to spread awareness. But also, there is a "commercial dimension" to this work. Advisers are benefitting from the increased demand for ­assistance.

Advisers have generally been positive about auto-enrolment, believing it ushers in a welcome change for the pensions industry, and a necessary leap to fix the wider pensions crisis. NEST has been well received as a scheme.

But as McPhail says: "I'm reasonably optimistic it will hold up its end of the solution. It's up to the rest of us to make it work." 

Next stages

So, what do advisers think about the future and how they will ensure employers are up to scratch over the coming months?

McPhail believes the approach will diversify. "We'll use a variety of communication tools, seminars, direct mail and advertising."

There is little information as yet on how advisers will actually phase communications in as the time draws near. But more details will be available throughout the year.

And despite the desire for simplicity from auto-enrolment, there are still a few issues that need to be ironed out. Many advisers are concerned with people who have fixed or enhanced protection in place.

They will be auto-enrolled, and Price is concerned that people may forget to opt out. "You might be away, it might just slip your mind, and before you know it, you've ­enrolled and broken the ­protection."

The DWP has not provided any clear answers and the industry is searching for a solution. But as ever, it is likely be placed in the hands of the adviser to sort through clients and ensure they put a procedure in place for these people.

McPhail is looking to the impact of auto-enrolment on financial ­services. As he says: "It will be ­interesting to see at what point the industry's capacity to deliver ­solutions is tested."

It will also be significant to see how advisers adapt and gear up to the challenges, and what kind of role they will play.