Auto-enrolment showcase: Administration will be the big challenge

Key points

• Employers will need to revisit their business processes, pension administration and employee communications to address the impact of auto-enrolment.

• A self-service portal is critical for an automated system to manage the opt-out and opt-in processes.

Implementing auto-enrolment will require employers to assess their business processes and systems in detail and come up with a solution that meets their particular requirements, says Mark Pemberthy

Looking beyond the short-term challenges of understanding the strategic impact of auto-enrolment on the reward budget and selecting the right qualifying pension scheme(s), the single biggest challenge that employers face is the day-to-day administration of pension schemes beyond the staging date.

Up to now, employers have had free rein in how they offer membership of their pension schemes to employees, but with the imminent arrival of auto-enrolment, that is about to change. Behind the simple concept of auto-enrolment lies a level of detail that requires employers and trustees to revisit business processes, pension administration and employee communication – with potentially drastic results.

The employer duties comprise a number of core processes that are very prescriptive and many need to be completed in limited timescales. So you might expect a high degree of standardisation in how employers address these challenges. However, every organisation has its own combination of payroll cycles, HR/payroll systems and qualifying pension schemes and will need to consider carefully how to meet its obligations in its specific circumstances.

Automation will be vital for most employers, due to sheer scale for the larger ones and because of lack of resource for smaller businesses. The JLT Benefit Solutions 250 club research, published in July 2011, showed employers were looking primarily to their business systems for the solution, but many were still unsure about how they will deal with auto-enrolment processes.

Employee input is needed for the opt-out and opt-in processes, and opt-up and opt-down if extra functionality is desired, so some form of self-service portal is critical for a fully automated solution. Also, the communication requirements of auto-enrolment should not be underestimated and the ability to send electronic messages to employees and members may be vital from a cost and timeliness perspective.

staging_dates

Major pension providers and administrators have concluded they need auto-enrolment capability to remain competitive and to retain clients. Levels of functionality and flexibility vary widely and this will be a factor in provider selection.

Standalone auto-enrolment solutions are being developed by technology firms and by benefits consultancies such as JLT. Options range from ‘black box’ auto-enrolment solutions to integrated benefits platforms with auto-enrolment functionality.

So, the key challenge is to delve into the detail and make sure employers make the right changes to their business processes and systems to make auto-enrolment work.

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Mark Pemberthy is a director at JLT Employee Benefit Solutions

Read more articles from the auto-enrolment showcase