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• Administration systems will identify eligible staff, calculate contributions, handle legislative changes and relay information to payroll and providers.
• Employers should ensure the system handles data carefully to avoid mistakes such as taking an employee’s pension contribution twice.
• Employers must decide how any new system will integrate with existing HR and payroll applications
Technology is the key to handling auto-enrolment, but employers must get their system right, says Jenny Keefe
With 17 months to go before the first compulsory phase of auto-enrolment begins, employers have
plenty of time to upgrade their IT systems to cope with the new regime, as long as they start now. The auto-enrolment of employees into workplace pensions will be introduced in phases over four years, with the largest organisations (120,000-plus staff) starting in October 2012 and the smallest employers going in by September 2016.
Benefits system experts are already eyeing the new market for auto-enrolment technology, and have devised sophisticated tools to manage the rules. Administrative systems will identify eligible staff, calculate contributions, handle legislative changes and relay information to payroll and providers.
The legislation will also put in place a minimum and maximum age, minimum earning criteria and band of earnings contribution criteria, all of which must be taken into account. Robin Hames, head of technical, marketing and research at Bluefin Corporate Consulting, says: “This is what must be done to satisfy the rules. Employers are free to establish simpler rules, as long as they meet the minimum thresholds.”
First, organisations must decide which department is responsible for administering auto-enrolment. Mercer’s Pension Auto-enrolment Survey, published in September 2010, found 34% of organisations will assign the task to HR, 34% to a pensions administrator and 26% to payroll.
Next, employers must choose from four categories of IT platform: flexible benefits systems, HR systems, payroll systems and corporate pension schemes. Some employers will offer other savings products alongside their corporate pension schemes, with the products managed on one IT platform, known as a corporate wrap.
Choosing a master platform
Tobin Murphy-Coles, director of marketing and flexible benefits at Lorica, says: “All the systems have their limitations, and it is up to [an organisation] to decide which will be the master platform. That will shape which one it uses for auto-enrolment. The disadvantage of using anything except flex systems or corporate wrap is you cannot engage with staff in the same way. Workers can opt into the scheme, but only at a predetermined level. They cannot adjust contributions.”
The employer must also decide how any new system will integrate with existing HR and payroll applications. In most cases, the HR system will populate the auto-enrolment system with the employees’ information. The auto-enrolment application will apply the rules and pass the results on to payroll and the organisation’s pensions administrator.
The ideal is to bring together HR, payroll and pension records on a single system, so all parties can quickly find out what is going on.
To share information, these systems put data in a generic format, such as .csv or .xml files.
But not all systems can swap data seamlessly and many need manual intervention. How the system is integrated will depend on whether the employer offers a workplace pension or enrols staff into the incoming national employment savings trust (Nest). It is likely some employers will offer both. Mercer’s survey showed 11% of employers plan to use Nest for some staff, and 6% will use it as the main pension plan.
Murphy-Coles says flex platforms could help employers offer Nest. “Flex can link to Nest or a [workplace] pension scheme, but a corporate wrap can only link into a [workplace] scheme, not into Nest,” he says. Nest’s own functionality will be basic, however. Bluefin’s Hames says: “While we may see some new entrants, it is clear that many traditional pensions providers and new entrants such as Nest will only provide the products to receive contributions. They are not seeking to offer mechanisms to facilitate employers fulfilling auto-enrolment duties.”
Some existing systems can be adapted to do the job, says Hames. “A small number of online benefit management systems are designed to interface with HR and payroll systems to manage the new joiner process for pensions. With a little adaption to meet the legislation, these will fulfill the same function in the automatic-enrolment environment.”
Create useful reports
Most systems will enrol new starters, but using technology to create useful reports by analysing the information in the database is easier said than done. The systems will have to relay management information to turn the blizzard of figures into information that helps employers and employees.
James Markham, managing director of SBC Systems UK, says: “One of the biggest issues is data management and integration. Ifthe system’s integrations are not in place or are not properly utilised, it cannot work.
Whichever technology is adopted, people often forget it must be able to provide proper management information and report back to the employer on a regular and ad-hoc basis.”
Employers should ensure their system handles data carefully to avoid glitches, such as taking an employee’s pension contribution twice. Lorica’s Murphy-Coles says: “When auto-enrolment comes in, there will be a lot of
nerves in the industry because of transferring data between platforms. The key is to ensure absolutely secure data transfer. All platforms need to be hosted securely. We cannot afford a data breach due to poor data transfers.”
An employer will also want to ask its administration provider how easily the system will adapt when the government tweaks rates and credits. SBC Systems’ Markham says: “It will be important to have rules-based technology that enables these changes to be made quickly and cost-effectively, with changes implemented at the right time.”†
While the systems are a valuable resource, HR teams are still responsible for the raw material, says Markham. “The technology is only as accurate as the underlying data, so it is vital to have all the data elements that affect eligibility, benefit levels and cost basis provided in an accurate, timely manner. The technology has to accurately process changes in eligibility, elections and calculations when retroactive data corrections are received.”
Avoid software pitfalls
There are pitfalls to relying on software for auto-enrolment, says Lorica’s Murphy-Coles. “The danger of setting matrices incorrectly on the platform could mean employees are not enrolled using the correct process and timings.
Two other potential pitfalls are system downtime and data security.” The alternative is unappetising, however.
Andrew Morris, director at NorthgateArinso, says: “Managing this process manually is a recipe for disaster. There is nothing more emotive than an employee’s payslip, especially where pensions and investments are concerned. Employees are, by nature, suspicious of these vehicles and may feel this is just another tax that hits their bottom line. Getting this wrong is really not an option.”
What technology can achieve
• Handle the rules to fulfil auto-enrolment obligations, for example apply minimum and maximum ages, minimum earning criteria and adjust contributions depending on income.
• Handle legislative changes when the government tweaks variables such as minimum ages and compulsory contribution rates.
• Send regular and ad-hoc management data to the employer and, in some cases, the employee.
• Allow organisations to go beyond the new rules and give more generous eligibility criteria.
• Allow employees to log their pension scheme membership decisions (or opt-out) online.
• Include benefit modelling functionality to help employees make decisions.
• Set rules to ensure employees pay the correct benefit rates and tax credits.
Five questions to ask a provider
- What is the procedure for changes?
New rule changes need to be made quickly and cost-effectively, with each being implemented at the right time. Will the changes require system downtime?
- Can the system engage with employees?
Ask whether employees can log on and make choices, for example choose the level of commitment based on their personal circumstances. Some systems also offer pension modelling tools to help employees make up their minds.
- How secure will the data be?
Pensions deal with highly sensitive information, so employers need to check that the platforms will be hosted securely and how files will be transferred.
- How will it integrate with existing systems?
Some systems bring together all records on a single system; others require manual intervention.
- How will it hook up with the national employment savings trust (Nest) system?
If an employer is offering Nest to some staff, it has to ensure the technology is compatible.
Read also How to budget for auto-enrolment
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