At school, we often blamed the fictitious ‘big boys’ for everything that happened. With auto-enrolment, we will be glad the big employers did it first, and instead of blaming them, we’ll learn from them.
First things first, though: let’s state some obvious ground rules. Employers come in all shapes and sizes, not just big and small, and there’s a lot in between.
Big employers have HR, payroll and even pensions teams. Small employers generally don’t.
Fewer smaller employers will have an existing pension scheme in place.
Employees at organisations of all sizes have a need to save for retirement.
Having established that, let’s consider what we’ve learnt from the employers that started us off in the first year of auto-enrolment.
Lesson 1: Preparation is everything
We’ve all heard the odd example of an employer phoning an adviser or provider a month before their staging date, but that’s not been typical. Most big employers have treated it as a project, have mapped out a timeline and managed it well. However, in almost all cases, they have underestimated some of the complexity of the task, and particularly the nuances of communicating to a diverse and often multi-locational workforce.
Lesson 2: Engage early with partners
Some employers have realised at a late stage that not all the third parties involved have been preparing things the same way as them. We’ve heard about last-minute payroll data gaps or mismatches, delays in preparing communications on key dates, and so on. Those that have managed this well have typically engaged suppliers early and involved them in meetings and correspondence from the outset.
Lesson 3: Data management
There have been a few instances of employers realising that at the heart of their challenge is getting good data on their workforce. Auto-enrolment requires more data on staff than is required for payroll, in our experience, so if only the bare minimum is held, it often needs supplementing with new data. And of course, an employer finding out that it has a casual worker known only as ‘Dave’ is unlikely to mean it has sufficient information to determine Dave’s eligibility for the pension scheme.
Lesson 4: Default investment options
Over the past 12 months, this has become a huge topic for the pensions industry. It is widely recognised that most people will not make an active investment decision and will therefore end up in the default fund. With almost 10 million people being automatically enrolled in the coming years, that feels like it’s important.
Employers that have engaged with this have not sought to become investment professionals, nor should they, but they have taken time to understand the options, and why any one should be more suitable than another.
Smaller employers should ensure that the off-the-shelf option from their provider is at least future-proofed: for example, changes can be managed by the investment manager without employees having to intervene, as things change in future. Without that, it’s very likely the default choice will need to be reviewed frequently.
Lesson 5: Communicating and engaging employees
Arguably, the most important element has been how employees receive the message about the changes to their benefits (and, in some cases, their pay packet). Those that have left this late, or treated it as nothing more than a process or duty, have often been surprised when employees have resented the message (and have opted out). Those employers that have managed this well have allowed time for messages to be digested, for employees to discuss things with each another, and to realise that, overall, pensions are a good thing.
So, the big boys have done their bit. They might have run away to focus on other things now, but they’ve left us much to ponder as many thousands of employers approach auto-enrolment in 2014. I am quietly confident we can make it work, if we heed these warnings.
Jamie Jenkins is head of workplace strategy at Standard Life
