Over the next 18 months, accountants are bracing themselves for the influx of new and existing SME clients asking for help around auto enrolment.
According to The Pension Regulator 99,000 firms are required by law to set up a workplace pension over the next three months alone. By early 2018 more than 1.75m additional companies are expected to enrol staff – that’s 30 times the total number of companies that have auto enrolled to date.
Experts expect those firms, which include a high proportion of tiny one-man-band micro businesses, are likely to approach their accountant, book keeper or an IFA for help to identify, set-up and administer the scheme.
But how do you know which pension offerings are going to best suit these smaller clients – and critically, which will provide a financially viable – and workable solution - for advisers for the long-term?
It’s an important question because a poor recommendation can mean drawing from personal indemnity insurance if things go wrong. This quarter we’re already seeing a much higher volume of sign-ups coming through as the number of companies auto enrolling swells. This trend will only accelerate ever more dramatically over the next two years.
As time runs out, we’ll see more and more small firms turn to advisers and trusted accountants to help them handle their new pension responsibilities. Some existing pension providers in the marketplace are much more geared towards large employers with a well-populated HR department. Others have developed systems that understand the much more complex small business environment, and offer better value and efficiency as a consequence.
So what should advisers look out for when selecting an auto enrolment package on behalf of their clients?
Up front set-up fees
These vary and range between free to £1,500 or even higher. A fee attached does not guarantee extra support or that you are signing clients up with a more reputable scheme. You should also avoid annual maintenance fees for clients too. This is often a fixed fee and can be anything up to £1,500 a year for a company or a per employee fee. Look out for schemes that are free to employers to set up and run ongoing, like NEST and Smart Pension.
Quality of the pension
There are a number of ways to check the quality of a provider’s pension, with Defaqto probably the best. Defaqto rates all pensions on a scale of one to five stars, five being the best. You can see Defaqto's auto enrolment ratings here. Also make sure they have high quality underlying funds.
This can vary from minutes to hours, days and quite often weeks per client. It largely depends on the efficiency of the system and time taken to authenticate data. Check the small print as it should be clear how long the sign-up process is estimated to take and if official papers need to be submitted, meetings held or if the process can simply be completed online. Smart Pension’s advanced technology adviser platform makes bulk client input possible in one sitting.
According to auto enrolment champion Henry Tapper, the biggest bottleneck for those running pensions on behalf of clients is compatibility of payroll and how that links data with pension providers. Look out for schemes that offer data links via existing APIs, the industry standard PAPDIS or the intermediary pensionsync, or all of the above. Failure to do this could result in hours of laborious manual data input on an ongoing basis, making client handling less efficient.
Ongoing management and internal communication
Check if employee assessment and letter generation is done automatically by the pension provider. A lot don’t do assessment and don’t generate letters, so the onus is on the employer - or those managing the scheme on their behalf - to manually assess all staff every month and create the communications with employees themselves. This is easy to get wrong – the rules on assessment are fiddly and subject to change. Choose a provider that assesses staff and generates the letters automatically so clients are compliant with the Regulator’s requirements. Failure to comply with this element means a £400 fine for your clients.
Administration costs to client employees
This is the annual fee taken from an individual employee’s funds under administration. The Government introduced a fee cap in April set at 0.75 per cent of assets under management but some providers bump that up to and even above 20% in year one with monthly transaction fee charges to employees. Choose a provider that doesn’t charge transactions fees or clients may be faced with disgruntled employees as a result.
According to research, guaranteed acceptance on a pension scheme for all employees was one of the most important considerations for advisers. It’s felt in the adviser industry that some larger firms will stop accepting companies with fewer than 30 employees. It’s wise to check this before wasting time enrolling. Smart Pension guarantees to accept all employers and employees.
AccountingWEB has launched the No-one gets left behind campaign to alert as many accountants as possible to the obligations implied by auto enrolment. Read our simple eight-point statement which sets out the auto enrolment facts you need to know.