If your read nothing else, read this …
- Some employers are taking steps, such as trying to boost numbers in existing schemes ahead of staging dates, to ensure they are not overrun once auto-enrolment starts.
- Compensation and benefits professionals will need to get buy-in from all parts of their organisation – HR, payroll and IT – to make sure auto-enrolment is not just pigeonholed as a pensions issue.
- Organisations need to start preparing for compliance as soon as possible because it is much more complex than many might think.
Complying with auto-enrolment will be a hard task, but policing the reforms may be even more difficult, says Nick Martindale
Making auto-enrolment work in practice will be a challenge for almost every employer, whether they have a pension scheme already in place or not.
Pauline Sibbit, partner at law firm Sackers, suggests the first step for any employer is to identify its staging date and then work backwards. “It might be some time away, but an employer can plan for the project and see what they need to do,” she says. “Then [it] can work out all the legal aspects, such as which staff need to be covered. Different employers use different types of worker, so will need to work out whether the regulations actually apply to them.”
Jamie Fiveash, director of customer solutions at B&CE, advises employers to start preparing for compliance as soon as possible because it is much more complex than many may think. “It starts with a data issue in that the employer has now got to cover its entire workforce and needs to ensure they are eligible,” he says.
“Employers need to start consolidating the data about pensions and look at what has to go on the HR system and what has to go on the payroll system. They need to start with the data issue and then talk to their provider about how it might be able to help them.”
Painless transition
Richard Wilson, senior policy adviser at the National Association of Pension Funds, says getting the right people involved will ensure a painless transition. “A lot of our members are frustrated that the corporate entity sees this as a pensions problem, but the pensions manager sees it as a payroll problem because it’s about making sure the payroll software is up to date and can cope with the change. The pension is the end bit that an employer has to get to.”
Wilson says reward professionals must secure buy-in from all departments, including HR, payroll and IT, to make sure auto-enrolment is not pigeonholed just as a pensions issue.
Rosemary Lemon, group head of reward and executive remuneration at Legal and General, suggests employers should create a dedicated steering group to tackle auto-enrolment, comprising representatives from the functions that will be affected. “We have a mixed steering group made up of legal, finance, payroll, pensions and HR,” she says. “It will have internal communications as well, because the message and the way in which it is conveyed are really important.”
Tim Middleton, technical consultant at the Pensions Management Institute, says employers that already offer a pension have three choices: to expand their pension so it becomes a qualifying scheme in its own right; to run a new scheme for auto-enrolment in parallel with the existing one; or to replace the existing scheme with a new one.
He says: “It may be that in a lot of cases the existing scheme, for whatever reason, simply won’t have the flexibility to accommodate everybody in the context of auto-enrolment.
“This is another threat to defined benefit (DB) schemes because that type of scheme doesn’t lend itself obviously to an exercise like this.”
For some employers, a two-tier system will be best, particularly if they have very distinct groups of workers, says B&CE’s Fiveash. “The first question is whether the current pension scheme is appropriate for the 10 to 11 million people who will be coming into a pension for the first time.”
Fiveash says employers might want a simple, easily understood scheme for auto-enrolled staff. “These workers may be paid weekly, rather than monthly, so it won’t cause that much complication because they are on a different payroll cycle anyway,” he says.
There are times when offering more than one pension makes sense, says Wilson. “If an employer has people on the shop floor who move around all the time, it will want to offer them something different to head-office workers, who it will probably have completely different views about wanting to keep, and who may be more motivated by pensions,” he says.
But James Kirkland, head of pensions, benefits and recognition at Telefonica, does not like differentiating between workforce segments. “I don’t think it resonates as a modern employer to have this concept,” he says. “I don’t think you could have an apathetic tier for those who haven’t bothered to join in the past. I think it’s quite divisive.”
Sackers’ Sibbit points out that, historically, many organisations have run different types of scheme for different groups of staff. “As long as it’s not unlawfully discriminatory, it shouldn’t be a problem,” she says. “People who want to avoid risk might look to have something common across the workforce, which could lead to dumbing down what you have now because you have to offer the same thing to everybody.”
Wilson says some employers are trying to boost numbers in existing schemes ahead of their staging dates. The three-month window that allows organisations to stagger enrolment could also help ensure they can handle the transition smoothly. “Even if an employer’s staging date is 1 November, it has three months to get those workers in, so it could auto-enrol some at the start and keep going until the staging date so it doesn’t get overwhelmed,” he says.
Double-edged sword
But this could be something of a double-edged sword, warns Kirkland. “If an employer uses the postponement fully, they will avoid putting in people who will leave within a short time of joining the business,” he says. “But if an employer puts staff in when they join and they have the deduction from their first pay packet, they may never really notice it and are less likely to drop out.”
Most employers are keen not to jump in too early when the new system is untried and untested. Rosemary Mounce, group pensions manager at Arup, says: “A lot of the detail has come out very late and you get the feeling there will be further adjustments.”
There is also little incentive for employers to act ahead of schedule or to exceed the basic legal requirements, says Mounce. “If an employer had been able to get certain proportions of staff in and run auto-enrolment using a more administratively simple process because [it was] doing better than the legislation, that would have helped,” she adds.
There are also doubts over how the pension reforms can be enforced.
“It is difficult to see how The Pensions Regulator will police this effectively,” says the PMI’s Middleton. “You can imagine a curt discussion after work one evening when the employer says that if [it has] to enrol an employee into the pension scheme, [it] won’t be able to employ them any more. Such off-the-record discussions will be hard to detect. I’m not convinced at this stage that this is something that can be policed properly.”
Read more from the Auto-enrolment Roundtable
