There has been a lot in the press this week about workplace pensions, costs and transparency of charges.
One question raised that particularly struck a note on a Payroll World forum this week asked whether this transparency will damage auto enrolment.
This set us thinking because over the last few months we've had many similar discussions with clients and prospects regarding costs around Workplace Pensions but with a slightly different emphasis.
Our specific issue surrounds access for employees to suitable professional advice, given changes to the charging structure within the financial world earlier this year. RDR came in in January and changed the way that professional advisers charge for advice. Historically, financial advice was commonly paid for through commission charged against pension schemes along with the administration costs charged by the pension provider. In the new order is where charges are transparent and billed seperately there potential consequences for employees and employers.
So back to the original question on the forums, "Will transparency damage Auto Enrolment?"
Our view is that many new first time pension savers are arriving into a post RDR world where independent financial advice is generally a paid for service rather than funded through the pervious commission based regime.
Our concern is that employees contributing relatively small sums 1%, are not going to be in a position to fund any sort of advice.
Of course employers can't provide advice. However, some forward thinking and enlightened employers, wanting to support employees, are having to foot the bill in full or part to ensure employees are well informed over pension choices. Of course, this is another hidden cost of Auto Enrolment for employers.
However, our experience thus far is showing that many employers can't afford to or simply don't want to subsidise employee independent financial advice. leaving employees to fend for themselves.
And for employees to seek professional advice will, under the new charging structure, be prohibitively expensive and beyond the reach of the majority. This is particularly so where an employer may have chosen a non NEST based automatic enrolment solution where the employee has greater scope and choice within the scheme framework.
Conclusions. Employees may now be starting to save under AE but we question whether they are getting or can they afford appropriate and timely advice regarding their pension provision.