Key points
• Auto-enrolment will bring a huge addition to employers’ cost base.
• The retail distribution review (RDR) will add cost to the provision of workplace pensions, and could cut off the lifeblood of advice and support for employees.
As if the costs of introducing auto-enrolment were not enough, the retail distribution review (RDR) is likely to add expense and confusion in the vital area of advice for employees, says James Biggs
How many times do you look at your bill in a restaurant and accept it as OK without question? It should, of course, be never. And when we spot something we did not order, we query it. We stand up for our rights as consumers and negotiate the correct financial outcome.
So, finance directors, HR directors and chief executive officers (CEOs) - did you order this hugely expensive addition to your cost base in the form of auto-enrolment with your veal? We are not talking an extra plate of small fries here; we are talking hundreds of thousands of pounds for businesses with even 400 employees.
Did the life and pensions firms ask for a radical and costly system build of middleware and the problem of enrolling low-paid, highly itinerant members with their wild mushroom risotto?
And do not even get me started on the cost of the retail distribution review (RDR) to the entire industry.
We all agree the concept of having enough money to live on in retirement is a worthy ambition. But the three golden rules have not changed: save enough; start soon enough and save consistently for long enough; and get enough growth. These alone will see most people have some retirement funding success and control of their own destiny.
What makes this even more successful is the reassuring arm around the shoulder of advice, the steady and accurate hand on the tiller of support. We all know this takes time and costs money, but people need it.
However, we are being propelled into a post-RDR world that insists we take more exams, have danced a merry jig to the demands of gap fill and stood up to proclaim: ‘We are just like accountants and lawyers, so pay us large hourly fees for our time.’ Do not get me wrong - these are all great things for the perceived professionalism of the pensions industry.
We are all qualified to give fee-based advice to those that can and want to pay, but the new model world of pensions post-2012 cuts out the very lifeblood of advice and employee support to everyone else.
So what can employees expect at the pared-to-the-bone end of the charging spectrum post-auto-enrolment?
Online is the solution, many say. But is it? Someone needs to rethink this and look at the statistics. Dealing with a wide range of suppliers has allowed us to conclude that less than 10% of pension members use the current online offerings in the corporate pension space. Who is going to flick the switch in employees’ minds to change this?
I welcome the spotlight on member enrolment. To get people more aware is a great thing, and we continue to work hard to deliver results in the new world.
We will adapt to what happens for the benefit of members, as we always have, but I simply do not recall ordering that extra portion of pilau rice.
James Biggs is head of corporate pensions - workplace savings at Lorica Employee Benefits
Key points
• Employers must consider the impact the cost of additional pension contributions and ongoing scheme administration will have on their organisation.
• Another key issue is how employers will handle the ongoing auto-enrolment and record-keeping requirements.
• Employers must ensure a full audit trail of employee communications is maintained.
Completing the groundwork for auto-enrolment is only the beginning, says Simon Fletcher. Employers must also make sure that their systems and technology can cope with ongoing requirements
In October 2012, the phased introduction of auto-enrolment and other associated employer duties resulting from the pension reforms will begin. This is not without its challenges for anyone involved in running, managing or administering workplace pension schemes.
Before doing anything else, an employer will need to analyse and segment its employee base into the three categories identified in the legislation.
Once this is complete, it will then be in a position to analyse the financial impact on its business, both in terms of additional pension contributions and the cost of ongoing administration and compliance. Employers will need to consider the most appropriate contribution structure in order to comply with the legislation and continue to meet their HR and business objectives.
Next comes the decision on the type of scheme to use - an existing arrangement, the national employment savings trust (Nest), or an entirely new scheme? Should employers use one scheme for all employees, or different arrangements for different sections of their workforce? This is an incredibly important decision and there is no one-size-fits-all answer. The Pensions Regulator stated in its corporate plan 2011-2014 that “all employers will need to review their current pension provision” in light of the new requirements, so employers should carefully consider all options before deciding on their route. We work with our clients to help them understand all of the above, finding the best solution for them in their own unique circumstances.
For employers that have already considered these vital first stages, the key issue is how they will handle the ongoing auto-enrolment and record-keeping requirements. Most existing HR, payroll, administrator or provider systems were not built to accommodate these requirements. That said, new software developed specifically for auto-enrolment is available and, as the first staging date draws closer, more and more solutions are being released to the market. At Johnson Fleming, we have spent four years developing our own online, real-time platform to provide employers with a simple, cost-effective, flexible and efficient solution for auto-enrolment and ongoing pension scheme administration.
Whatever solution employers choose, they will need to ensure it integrates seamlessly with their existing HR and payroll systems to ensure timely and accurate flows of data. The system will also need to manage and, crucially, record all employee communications. A full audit trail must be maintained in order to effectively track opt-outs and meet the automatic re-enrolment requirements.
The final piece of the puzzle is specialist support. This will be crucial, both for an organisation’s employees and for its HR or benefits team, no matter how good its chosen auto-enrolment system is.
Simon Fletcher is client relationship director at Johnson Fleming
Read more articles from the auto-enrolment showcase
