Rachel Brougham: Employers need to consider auto-enrolment costs

It is easy for employers to think that the cost of auto-enrolment is simply the additional pension contributions they will be required to make, and this in itself is quite straightforward to calculate, as long as salary data is easily available and the scheme design known.

If these are not available, employers will start to incur costs in cleaning up their data and deciding what contributions to pay. But, as so many commentators have pointed out, auto-enrolment is not just a pensions problem.

For example, Whitbread recently reported having spent more than £1 million on implementation alone. Of course, Whitbread is a very large employer, but the challenges it faced in implementing auto-enrolment will be similar for all employers, albeit on a different scale.

Decisions need to be made within an organisation, and the complexity of auto-enrolment will require management time and effort, with the help of specialist technical support. This can either be bought through an adviser or resourced directly from within the organisation.

Pension provider selection, where needed, will require specialist advice and time commitment. The services offered by a pension provider will have knock-on implications for payroll and HR systems, which at the very least will need to be reconfigured to deliver correct data in the right format to the provider. Not all systems will deliver all the data providers require and not all providers will offer workforce assessment services. Employers may therefore need to look to payroll providers for solutions or to bring in a system from a third party, both at additional cost.

Finally, communication on the scale and detail required for successful auto-enrolment is unprecedented in the world of pensions. Most providers will do some of what is required but not necessarily all, so the employer must consider (and pay for) not only the creation of the relevant material, but also the cost of its distribution.

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In summary, the total cost of auto-enrolment will include advice, provider costs and maybe procurement, but above all will require significant time commitment from internal resources to implement it in a compliant and successful manner.

Rachel Brougham is a principal, DC consultant and UK leader for auto-enrolment at Mercer