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• Employers need to be aware of administrative challenges, such as auto-enrolling staff every three years.
• Organisations need to develop robust administrative processes, which are regularly reviewed.
Organisations need to develop robust, regularly-reviewed administrative processes in order to keep on top of requirements such as auto-enrolling opted-out employees every three years
If employers think that the latest HR software is fundamental to administering auto-enrolment, they might want to think again. According to Spencer Roach, compensation and benefits manager EMEA at technology and manufacturing Honeywell, having a good technology system in place is a bonus but not essential.
“There is no doubt that a well designed and well implemented technology solution can be really helpful, but this is certainly not the only way to administer auto-enrolment. What employers do need though is a robust process, which is regularly reviewed and improved over time. There are likely to be process faults along the way, but the key to a robust process is constantly improving it, based on those experiences,” Roach explains.
Honeywell successfully implemented an auto-enrolment defined contribution (DC) plan ten years ago, with no complex flexible benefits system in place. At that time, the company had two payroll systems, 16 payroll locations and ten payroll dates. “The right process and people make it possible even without sophisticated technology. So for those without the size or budget to implement complex flex software, meeting the requirement is still possible,” says Roach.
While employers, may be relieved that under the legislation they have three months to auto-enrol an employee after he or she starts work with the organisation, Roach gives a word of caution about not enrolling staff immediately.
“[Auto-enrolment] worked for us because the process was tied explicitly to all other HR activities required for a new employee. Introducing a waiting period would add complexity and risk. This is because the enrolment becomes a separate process from [joining] the organisation. Similarly, age restrictions would add complexity to the ultimate process.”
Meanwhile, Jeremy Mindell, reward and tax manager at Henderson Global Investors believes that effective auto-enrolment will be as much to do with having good staff as it will be about having the right technology. “It is all about continuity. If an employer has a good team with the right knowledge it will make things much easier to manage. But if a couple of people leave and take that knowledge with them it could cause problems. A combination of good people, continuity and IT is key.”
Paul Gilbody, director of market engagement at Nest Corporation, says that organisations need to start by assessing the pension scheme they already have in place. He advises employers to look at their pension provider, what kind of pension they want to offer, as well how to get the right advice from a consultant. “It is about understanding what [exists] at the moment.”
No one-size-fits-all approach
When it comes to successfully implementing an auto-enrolment system, there is no one-size-fits-all approach. Paul Armitage, consulting director, employee benefits solutions, at JLT Benefits Solutions, says: “Employers use a profusion of solutions to run pension schemes, from specialist administration platforms and straight-through processing, to manually updated spreadsheets or paper-based filing. Even for larger employers, data can be held in several different places and the use of HR and payroll systems overlap.”
Organisations should not need to invest pots of money in new software either, especially if they can take advantage of existing processes and those of their pension provider. “If we take an insured group personal pension (GPP) plan as an example, the employer will receive notification of an individual’s intention to join. They will then use their payroll data, plus joining instructions relating to contribution levels and fund choice, to upload [the employee] as a new member on the insurer’s website,” Armitage explains.
The same process can be applied to auto-enrolment, but the employer will shoulder the responsibility of identifying eligible employees each month, and handle opt-outs and re-enrolment at the three-year period.
Larger employers, however, will probably look for an automatic-enrolment solution that identifies eligible employees on the payroll system. “That requires an integrated solution that sits between the employer data and the receiving scheme. Pensions administration and benefits platforms look well placed to deliver this functionality,” says Armitage.
Finding a software system that combines both HR and payroll information could be tricky though. “Most technology systems are either HR centric or payroll centric but auto-enrolment will need to combine both. Hopefully that is something that software companies are working on,” Mindell says.
Surge of interest in reforms
Gilbody says that there has been a surge of interest in the pension reforms from payroll organisations, most of which realise the importance of co-ordinating information for auto-enrolment. “The payroll point is absolutely critical,” he says.
In the run up to their phasing-in period, organisations need to compile and evaluate all the relevant data and speak with their pensions provider. Kelly Bol, HR manager, reward, at disability charity Scope, says: “Hopefully employers should have the relevant data on all their employees in a HR database or system that they can pull together and then identify eligible staff and cost. If not, they are going to have to ask for data from their payroll team.”
There are, however, many administrative challenges that an employer should be aware of. For example, making sure it has a system in place to ensure opted-out staff are auto-enrolled every three years and managing low earners. It is also important to monitor employees whose earnings are almost at the minimum salary threshold.
Brian Newman, international HR director at entertainment firm Live Nation, says: “An additional challenge for genuinely casual earners is the fluctuations in their income, which will require some level of averaging out to ensure they are not disproportionately deducted.”
An up-to-date payroll system will usually be the most efficient way of making the relevant deductions but, when it comes to low earners and casual workers, employers need to make sure they keep communicating and explain the pros and cons of auto-enrolment clearly.
Read more from the roundtable discussion on pensions auto-enrolment