As workplace pensions become a legal requirement for UK employers, employers need to ensure their auto-enrolment strategies are fit for purpose.

For more than six months, the biggest change in the history of pensions has been under way. Introduced on 1 October 2012, auto-enrolment requires employers to auto-enrol their staff into a qualifying scheme at set staging dates, which are being phased in until February 2018.

As one of the UK’s top defined contribution pension providers, we have already supported a significant number of large employers through their staging dates, and we expect to have helped about 400,000 employees auto-enrol by the end of 2018.

Our experience so far has given us great insight into how best to prepare for pension reform, and we believe there are five key considerations for employers.

Consider workforce composition

First, employers should consider the composition of their workforce and whether they want all employees to join their pension scheme. If, for example, an employer has a lot of temporary workers or a high staff turnover, the scheme may not be central to the organisation’s reward strategy.

Assessing levels of permanent staff could also help employers decide whether to offer the scheme through a contract of employment or purely via automatic enrolment.

For employers that take on many temporary or seasonal staff, it is worth considering introducing a waiting period before staff are eligible for pensions. This could help reduce the potential overheads of peak periods, when earnings are higher and lots of employees tip into eligible status.

To assess employees’ eligibility, employers need certain key pieces of information, such as date of birth and opt-out status. Employers should check exactly what is required with their provider and hold all this data in one place.

Cut costs

By administering auto-enrolment as efficiently as possible, employers can cut costs. That could mean aligning their enrolment process with their business procedures, to prompt appropriate employees to, for example, administer opt-outs. Also, pensions can be offered via a salary sacrifice arrangement, which will reduce employers’ national insurance contributions.

When choosing a default investment option, employers should consider not only the price, but also the particular needs and the risk and reward profile of their workforce, ensuring pension fund objectives are linked to good outcomes for members. Investment choice should also be underpinned by rigorous governance and regular reviews.

Engage staff

A scheme that engages staff effectively is more likely to succeed. We have seen employers use auto-enrolment to renew interest in their pension, and a well planned and executed communication strategy has helped to minimise opt-out and increase take-up.

Employers should also consider whether generic statutory communications or a targeted approach is best for their workforce. They might even want to develop a workplace benefits website. Here, financial education tools and calculators can help staff make informed decisions about their future finances.

But ultimately, although preparation can help get the best from auto-enrolment, employers should not underestimate the amount of work involved, and ensure they leave enough time to get their plan and any required changes in place.

Graeme Bold is head of workplace proposition at Standard Life