Auto-enrolment showcase: Finding out the how and the how much

Key points

• A financial analysis of the full cost of pension contributions is a vital part of preparing for auto-enrolment.

• It is also essential for employers to assess their technology provision to ensure it is capable of coping with all of the requirements of auto-enrolment.

Employers must seek to quantify both the explicit and implicit costs of complying with auto-enrolment and get to grips with the challenges of efficient data management, says Robin Hames

Auto-enrolment presents a range of challenges. Contribution costs, planning for the administration, communicating to employees, maintaining records, getting systems aligned, checking the position for temporary staff and contractors – the list can seem endless and without structured planning and advice, it could all go horribly wrong.

With the issue of staging dates – the last date by which an employer must comply with the new employer duties – now settled following the pensions minister’s statement in January 2012, the time to really get planning is upon us.
Unsurprisingly for many finance departments across the UK, the key issue has been to bottom out and quantify the costs of auto-enrolment.

Given that there are a number of acceptable contribution options using different definitions of pensionable salary, a financial analysis of the explicit costs of contributions is necessarily a vital part of the exercise. Indeed, the team behind our own auto-enrolment financial modeller has seen a significant increase in demand for reports on the range of potential costs of complying with the new regime.

The degree of additional administration required will be driven by some of the decisions arising from this examination of the explicit financial costs of the reforms.

Size, turnover, the degree to which regular pay fluctuates, the balance of full-time staff, part-time, temps and contractors will all be contributory factors in assessing the complexity of administering employer duties. Throw in changes to eligibility criteria and the definition of pensionable salary, and HR departments could be facing some major administrative headaches.

This leads to questions around data management. Relying on a paper-based process does seem optimistic. This is why pension providers and consultants with proprietary technology are investing time and resources to deliver middleware that will interact with HR and payroll systems.

It is natural to assume auto-enrolment lends itself to a payroll provider software upgrade, but this is only the case if we look at the enrolment protocol in isolation.

Much of the administration and communication work is actually pre-payroll – staff need to be categorised and informed based on their eligibility. Other parts, such as administration of the opt-out protocol and handling the subsequent contribution refund, straddle the payment process.

Triggering the correct payment via payroll is only part of the solution. The complete answer will lie in broad-based technology propositions supported by a deep understanding of the legislation and an ability to seamlessly interact with all of an employer’s IT infrastructure.

Auto-enrolment carries implicit as well as explicit costs; planning must include this by asking ‘how?’ as well as ‘how much?’.

Robin Hames is head of technical, marketing and research at Bluefin

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