Referral to go

Practitioners who deal with companies should be increasingly aware of the new pension auto-enrolment project, which means almost all the UK’s 4.8 million businesses must introduce suitable schemes for their employees over the next few years. It’s being phased in up to 2017 with the largest companies already on stream, and smaller companies following.

If this has a familiar ring, it’s probably because the government attempted to tackle this in 2001 with ‘stakeholder’ pensions. It was a damp squib. Many employers simply did the minimum necessary by ‘nominating’ a pension that the employees could join if they chose, and leaving it at that. Take-up was low, many schemes sat dormant and employers had very few obligations.

However, it would be a serious mistake to think that auto-enrolment means more of the same. This time there are stringently enforced obligations on employers: not only their monetary contributions but also in terms of implementing and administering schemes on an ongoing basis, which can be complex.

And, of course, the biggest difference is that employees are automatically enrolled, so any lack of interest won’t mean a lower take-up. Nearly all full-time staff will have to be enrolled, with exceptions for the under-22s, those over state pension age and those who deliberately opt out.

While some larger businesses may be willing and able to sort out their auto-enrolment duties themselves, the vast majority will look to their professional advisers for help and guidance especially because the penalties for getting it wrong – typically £500 per day – are too large to ignore.

Some may consider that – beyond sorting out their own company’s compliance – it’s outside their role and not their issue. But there are good reasons to be prepared. For a start, many clients expect their advisers to be able to guide them on all sorts of issues and an informed referral to a specialist gives a much better impression than a shrug of the shoulders.

Also, of course, you’d much rather a client was speaking to a trusted contact than to an unknown quantity that may be more aligned with a competitor.

Finally, it’s worth highlighting that the apparent slow and steady implementation is actually the lull before the storm:

• There are potentially 4.8 million businesses needing help but only about 30,000 financial advisers in the UK, which means up to 160 businesses needing help for every adviser. And this assumes that all financial advisers will or can help. In fact, many won’t want to get involved in this area.

• There are likely to be logjams at the other end: those pension companies who still operate in this area (fewer than hoped) are already warning that the expected flood of smaller companies, when their ‘staging dates’ come about, are going to test the system to breaking point.

Given these two points (the work involved by the adviser and the probability of delays) auto-enrolment is generally considered a 12–18 month project, and it’s likely that many employers (the smaller ones, or those that leave it too late) will either struggle to find a financial adviser willing to help them, or also be facing exorbitant fees.

In the UK, there are about 130,000 solicitors, 280,000 accountants and just 30,000 financial advisers. That’s one financial adviser for every four solicitors and nine accountants. So if you haven’t established your relationship yet, and you’d like your clients to avoid an auto-enrolment tangle, it may help to canvas your adviser contacts now, gauge their competencies and have a ready referral in mind.

Scott Gallacher is a director at Rowley Turton

He writes the regular IFA comment in Private Client Adviser