Auto-enrolment roundable: Administration

If you read nothing else, read this …

  • Employers may spend a lot of time on the administration created by a small number of staff, such as contract workers.
  • Even employers that already auto-enrol staff may need different processes to comply with the legislation.
  • When auto-enrolling staff, employers could inadvertently breach protections around lifetime allowances taken out for high earners.

Employers, even those already auto-enrolling staff, should not underestimate the administrative burden of complying with the reforms, says Nick Martindale

The large amount of administration involved in preparing for and implementing auto-enrolment is a major headache for employers.

To make matters worse, many organisations are still largely unaware of what they need to do, and this is likely to become more of an issue when smaller employers are required to comply with the legislation.

Rosemary Mounce, group pensions manager at Arup, says that once the biggest employers have complied, the levels of understanding about what is required will not be as strong among the smaller groups of employers that follow. “There will be a tremendous tailing-off of employers understanding how much is needed and being prepared to do what is required,” she says.

Working it out as they go along is not an option for employers because the administration process has to be operating effectively from day one and able to cope with employees joining and leaving the pension scheme on a regular basis, says Mounce.

There are several other administrative challenges facing employers. For Rosemary Lemon, group head of reward and executive remuneration at Legal and General, salary sacrifice is a particular concern, especially with regard to employees who have already signed up to their employer’s existing pension scheme under a salary
sacrifice arrangement.

“There is the question of whether we have to get people to re-agree to the salary sacrifice or whether the fact that they have already agreed to do it once is sufficient,” she says. “We are trying to get clarification on that because if we have to re-ask everybody and get 7,500 people to re-sign a form, that is quite a big exercise. If we can accept that they have already done it, that will make it a lot easier.”

Salary sacrifice

Pauline Sibbit, partner at law firm Sackers, says employees who have given their consent to salary sacrifice once should be able to be automatically enrolled on that basis, but she points out that it could be a breach of the regulations if it is imposed as a condition of entering the scheme.

A bigger issue is that when auto-enrolling staff, employers could run the risk of inadvertently breaching protections around lifetime allowances taken out for high earners, says Sibbit. “The key is that [high earners] have to understand that they can opt out,” she says. “An employer obviously can’t induce them to opt out, but [it does] have to find a way to communicate.”

This is also a concern when it comes to using consultants or former employees who return to work on a part-time basis, says Mounce. “We have people who might hit certain levels of protection and we won’t know that because it’s to do with employment elsewhere and we are only using them for two days a week on a six-month contract,” she says.

The upshot of such situations is that there could be a heavy administrative burden to cope with a small minority of employees. Ian Hodson, reward and benefits manager at the University of Lincoln, says: “The mass bulk of the workforce will take care of itself, but [auto-enrolment] will bring out all the little-sized, casual workers.”

Certain groups and sectors are more likely than others to find the administration onerous. Richard Wilson, senior policy adviser at the National Association of Pension Funds (NAPF), suggests that, ironically, it may be organisations that already automatically enrol staff into pensions schemes that struggle the most. “They have an intuitive way of doing auto-enrolment but haven’t realised they have to completely change all their processes for the new system,” he says.

This conundrum is something Hodson can relate to in view of the University of Lincoln’s national public sector scheme. “Auto-enrolment already causes us great levels of administration and puts a huge emphasis on the payroll system,” he says.

“You tend to find that processes become driven by the system that is at the end of the line if you don’t have other processes in place, so at the moment payroll is becoming the driver for it.”

Employers in the retail and construction sectors are also likely to struggle. Jamie Fiveash, director of customer solutions at B&CE, which runs The People’s Pension, says: “There are lots of part-time workers who are going to go under the cap and then over it again, and an employer will have all those issues around the opt-outs to think about.”

The way in which staff are paid in the retail sector, in particular, where low earnings are often supplemented by quarterly bonuses, will also cause problems, says James Kirkland, head of pensions, benefits and recognition at Telefonica. “The admin will be horrendous because their earnings will bubble along and then every quarter they’ll shoot through the limit and then they’ll be back down towards the minimum wage threshold,” he says. “That doesn’t work very well with auto-enrolment.”

Servicing queries

Another potentially time-consuming issue could be servicing staff queries once the new regime comes into force. Many employers hope software and payroll providers will step in to help relieve the burden created by auto-enrolment, but there are concerns over their abilities to do so.

The NAPF’s Wilson says: “A lot of people we talk to are anxious about the situation with software and payroll providers, to the extent that they are wondering whether they have to start making their own preparations because it is not being made clear to them what the provider’s product is and how it can work.”

Mounce is a case in point. “Our pension provider has very publicly stated that it will provide a complete system for clients, which sounds wonderful, but we are all still waiting to see it,” she says.

Kirkland, meanwhile, would like to see greater simplicity introduced into the market by providers. “The way the process has worked so far is that you have to go through a wish list of all the policy areas, then you aggregate all the things you want and find they don’t work together,” he says.

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Kirkland’s ideal solution would be for data management to reside with an in-house payroll function, but B&CE’s Fiveash says pension providers can play an important role in helping to ease the burden of administration.“Employers trying to administrate these schemes themselves is a recipe for disaster, particularly at the very small end,” he says.

Read more from the Auto-enrolment Roundtable