October 2012 saw the first tranches of large employers going through the pensions auto-enrolment process, and thousands of employees began saving for retirement for the very first time.
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- At the auto-re-enrolment stage, employers will need to re-enrol eligible staff into a pension scheme.
- It is an ideal opportunity for employers to review the systems and processes they have in place for auto-enrolment, as well as looking at the support they receive from their provider.
- Employers should start planning well in advance of their re-enrolment date to ensure their pension provision is best suited to their organisation.
Three years on, and those organisations are facing the re-enrolment stage for the first time. It is at this point that employers repeat the duties they first carried out at their initial staging date, and re-enrol eligible staff into a pension scheme if they are not already in one.
Opportunity for change
While at their staging date employers may have been concerned primarily with complying with their new legal duties, re-enrolment presents opportunities for them to assess what they are offering to staff. Employers should start assessing and planning well in advance of their re-enrolment date, even if they have a high percentage of employees already enrolled in the pension. At this stage, an employer should engage with its consultants and providers to establish what it already has in place, and if there are any weak spots.
It is also an ideal time to re-issue communications to employees, reminding them about auto-enrolment. Steve Herbert, head of benefits strategy at Jelf Employee Benefits, says: “In some respects, it’s not dissimilar to the first staging process, so there’s quite a lot of planning and execution required. While [employers] are doing that, it’s quite a good opportunity to look at what’s gone right and what’s gone not quite as well.”
Pensions re-enrolment can almost be considered a secondary auto-enrolment market, says Angela Seymour-Jackson, managing director of workplace solutions at Aegon. Although the majority of employers have had a good experience of auto-enrolment to date, others have not been as fortunate, and can use this stage to make changes.
Problems that employers may have encountered include a difference in the level of support from providers during the initial staging and beyond, compared with that originally implied. This would have made auto-enrolment more complex for some employers than was necessary. “We always believed that once employers start coming up to that three-year stage, that would act as a trigger for many to start looking if they are with the right provider and whether they had the right proposition for their employees,” explains Seymour-Jackson. “We are expecting, and seeing, the early signs of this secondary market really start to emerge. Changing a provider is never straightforward or simple; employers will also have to go through a review, but we’re expecting to see a kick-up in that activity as employers come up for that three-year staging process.”
Additionally, if employers did not give themselves enough time to prepare for auto-enrolment, they may use this secondary stage as a chance to look at how they do things. John Copsey, chartered financial planner at Informed Financial Planning, says: “[Some employers] are finding their scheme very cumbersome. The amount of administration they have in the process each month is forcing them to look at what they are doing, and who they are doing it with.”
A chance to review benefits offering
The re-enrolment stage also presents employers with an opportunity to review their whole benefits offering while looking at their pensions provision. Derek Miles, managing director at Aspira, says: “We are seeing a definite move to look at the whole benefits package as part of that review, as opposed to just carrying on with the status quo. [Employers] are seeing it as an opportunity to say: how has it panned out? What has the response been?”
One of the big problems with benefits is that employees can easily forget what is available to them, so reinforcing communications can help drive take-up of all offerings.
“This is a good opportunity to drive home the message about what’s already there, because that then helps to engage people,” says Jelf’s Herbert.
Communicating pension freedoms
Since the first waves of auto-enrolment three years ago, the pensions industry has also now seen the introduction of the pension freedoms. With the vast number of new pension savers now in schemes, employers can use their re-enrolment date to ensure that staff are aware of the new retirement choices, as well as ensuring that their pension provision can cope with the changes. Aspira’s Miles says: “The challenge for employers with the 55-plus [year-old employees] is those who want to access benefits now, and continue membership of the scheme. There’s the mechanical challenge of: can the scheme that they run operate with that?”
Key to going through the re-enrolment stage is that employers have given themselves enough time to once again review their proposition and ensure it is the best fit for both employees and the organisation. “The main thing is that it’s a good opportunity for employers to put their foot on the ball and check the level of support they’ve got,” explains Seymour-Jackson.
Case study: Welcome Break plans for smooth re-enrolment
Welcome Break is planning for a smooth process when it comes to its re-enrolment date in June 2016.
The motorway service operator began planning for its initial auto-enrolment six months prior to its staging date in June 2013, and found that by working with advisory service Aspira it was able to ensure a relatively smooth operation once the first contributions were made.
Welcome Break operates two pension schemes for auto-enrolment: one for its weekly paid staff and one for its monthly paid staff. Due to the transient nature of its workforce, the organisation auto-enrolled 2,000 eligible employees, and had few opting out.
The organisation worked with its advisers to plan and create the communications around auto-enrolment for staff, which were sent out two months before its staging date. Its monthly paid staff all received a one-to-one session with Aspira, which covered all areas of pensions including contribution rates and possible retirement outcomes. As a result, some employees contribute more than the minimum requirement.
However, Welcome Break had not expected the initial staging date to be as time consuming as it was. Pauline Cashmore, payroll manager, says: “I never envisaged the amount of time I would have to spend on auto-enrolment. With pensions in a payroll department only supposed to take up X amount of time, for the first three months I would say it was almost 80% of our time. It was a huge impact and I do believe that [employers] like us didn’t quite realise how much it would entail.”
Welcome Break is fully aware of its upcoming duties of re-enrolling eligible employees at its three-year staging date anniversary, and has already begun to plan for the task. Cashmore believes the re-enrolment stage will not be too challenging and plans to send out communication two months in advance. She says: “In theory it shouldn’t take too much [work]; it will be the communication again to inform [staff] that we’re re-enrolling everybody.”
Viewpoint: Tim Middleton
This summer will see some employers implementing the first cyclical re-enrolment exercises. These will be the nation’s largest employers. Having been the first to implement auto-enrolment, after an interval of three years, they are now the first to apply re-enrolment. In carrying out this exercise, it will be important that they understand the way in which the process differs from the initial enrolment into a workplace scheme they went through. It will also be vital that the process is communicated effectively to employees.
Employers will need to select a re-enrolment date from a window that stretches for three months either side of the third anniversary of their initial staging date. Those workers who are to be re-enrolled must have previously been a member of the employer’s pension scheme and must meet the following criteria: they must not be an active member of another qualifying scheme; they must have left the employer’s scheme more than 12 months previously; and they must qualify as ‘eligible jobholders’ as at the re-enrolment date.
Re-enrolment differs from the original exercise in that the assessment need only identify those workers who are eligible jobholders. Additionally, there is no option for the employer to use postponement; under re-enrolment, active membership must commence immediately.
The effective communication of re-enrolment to workers will be key; they will need to fully understand why they are being brought back into a scheme that they had previously chosen to leave. It is important that they are aware of their options, including how to opt out a second time.
This is also a good time for employers to review the design of their pension scheme. Since April this year, there are now statutory duties for employers requiring them to ensure that schemes continue to represent good value for money for members. Additionally, the changes to retirement options that took effect in April mean that a scheme’s default fund must be designed in a way that anticipates the range of choices now available on retirement. Regular review is now more important than ever.
Tim Middleton is technical consultant at the Pensions Management Institute