2015 marked yet another significant year of change in the pension industry. The auto-enrolment scheme is rolling out, with larger organisations’ staging dates having passed and those of smaller companies just beginning. What’s more, pension freedom reforms have given people greater power over how they manage their investments and savings. On the face of it, this all seems very positive, with nearly sixty per cent (59.4% – ONS data) of UK employees being part of a workplace pension scheme and people generally having more control over their funds.
This increased control, together with the growth in engagement, also comes with risks which need to be addressed. Andrew Firth, Chief Executive of Wealth Wizards, the UK’s first ‘robo-adviser’, looks at auto-enrolment, pension reform and the opportunities that exist for employers and employees around advice.
Why organisations must provide support beyond auto-enrolment
Organisations, both big and small, are at different stages in the auto-enrolment process. Many are, understandably, still navigating their way around the basic requirements and haven’t yet been able to focus on what’s required to increase employee engagement and to reduce business risk. However employees are turning to their employers for advice and in many cases the necessary tools aren’t in place to provide it.
We would advise businesses to be as clear as possible on their responsibilities, including confirming their staging date and ensuring appropriate resources have been allocated. We’d also then strongly recommend that businesses develop a project plan to keep to the timescales required. Understanding who is and isn’t eligible for auto-enrolment among their workforce and in turn calculating the cost based on the contributions is also important, along with making sure their payroll processes support the pension contributions. And every three years, employers will need to re-enrol employees who are not in pension saving schemes.
Most organisations can navigate their way through the basics but how do employers ensure employees are well informed? Where is the advice coming from to support employees on making the right pension decisions and how will employees be guided in this process?
Many individuals avoid seeking advice as they believe it will be expensive. In fact, recent research showed that 50 per cent of over 55s said that they were not willing to pay for advice (Research by money.co.uk). Since pension providers have withdrawn commission payments for advice, affordable and accessible advice has been reducing for both employers and employees. Online advisers, such as Wealth Wizards, are common place in the US and are starting to emerge in the UK too. They plug the advice gap by offering affordable advice via online apps. These apps, which generate a full personalised advice report in around ten minutes, are supported by leading experts including actuaries and chartered financial planners. This new generation of accessible advice will provide many more people with professional guidance on their pension investments, while also supporting HR teams.
The benefits of advice?
Advice is beneficial to both employees and employers. For employees, it helps them to navigate through the numerous market choices and ensures that they are making the most of their pension investment and puts them back in control. For employers, we would encourage advice to be considered as a core part of an employee benefit package. It is a visible and tangible way to demonstrate the value that the employer is putting into the individual’s pension. It can also help drive take up of benefits like Salary Sacrifice, which is helpful to both parties. Having an automated advice system can also take away a huge compliance burden from organisations, as the liability for advice rests with the adviser and not the employer, and the process is fully regulated. Online advice is easily scaled as a business grows and can take away much of the thinking for organisations. It can be automatically updated annually to recognise changing circumstances, which in turn supports the auto-enrolment process further.
While many organisations have embraced the auto-enrolment roll out, we believe there is an opportunity to further support employees with their pension choices by offering affordable advice and guidance. As technology develops, legislation changes and employee expectations increase, going beyond the legal requirements and offering advice will not only help to increase employee engagement but it will also help to reduce business risk.
For further info on figures contained in this article, visit the money.co.uk website