The transition to auto-enrolment requires careful planning. Here is a five-point plan for employers.
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- Employers should identify their staging date as soon as possible.
- A project team should be appointed to manage systems and processes.
- Any systems developed or redesigned for auto-enrolment purposes should be future-proofed.
- Auto-enrolment communications must be clear and easy to understand.
1. STAGING DATE
Employers must first ascertain their staging date. They can then begin planning for auto-enrolment. Steve Herbert, head of benefits strategy at Jelf Employee Benefits, says: “We are still finding a few employers that did not know auto-enrolment was coming.
“Getting the staging date is key. The important thing is that it is often not the date the employer thinks, because it is set by the PAYE numbers on 6 April 2012, which could be different to what it will be, or is now, following any changes in the workforce this year.”
Informed employers will be able to tackle any issues that may arise from the time of year their staging date falls. For example, some employers have brought their staging date forward to coincide with their flexible benefits enrolment window. Savvy employers will draw up a timetable to ensure they have enough time to complete all necessary tasks.
The planning stage should include an information-gathering exercise to identify staff eligible for auto-enrolment and the obligations relating to different types of worker.
Ann Flynn, head of workplace marketing at Standard Life, says: “Employers will have people in their workforce who might be members of an existing pension scheme, employees who are eligible for the scheme but have decided not to join, and then will have a population who will be ‘auto-enrolees’ when it comes to the organisation’s staging date. So employers will need to consider what those different population numbers are and what they will need to do for them and when.”
2. PROJECT TEAM
A cross-functional project team should manage overall scheme design, systems and processes that may need implementing or redesigning, plus communications with employees. Jamie Fiveash, director of customer solutions at B&CE, says: “Employers need to involve key stakeholders. A larger organisation would involve the pension department, HR, finance and any external advisers and providers. These stakeholders should be involved quite early in the project team.”
Richard Smith, pensions specialist at PricewaterhouseCoopers (PWC), says: “If you rely heavily on external payroll or IT services, remember that every other organisation will want their help, so get your request in early.”
The project team should identify who will deal with each aspect of the project. Supermarket chain Morrisons used four workstreams: scheme design and set-up, which focused on legal and compliance issues and a review of set-up arrangements required for the scheme; an IT workstream focused on identifying whether systems needed to be established or redesigned; business integration; and communications.
3. SCHEME DESIGN
Scheme design is key during the planning process as it can affect the processes and systems an employer needs, its business costs and its entire benefits offering. Wendy Taylor, HR director at Morrisons, says: “We probably spent between April 2011 and February/March 2012 on the design phase while we nailed what we were doing and before we started to build anything.
“On reflection, it really helped. At the time, it felt like we were spending a long time on this before we actually got going, but in some ways, because we had been so clear at that stage about what we were going to do, it made implementation that little bit easier.”
Employers should start by reviewing their current pension plan. Is it fit for auto-enrolment purposes or does it need restructuring? Failing that, is a new scheme required?
Jane Earnshaw, head of reward and recognition at Asda, says: “We saw this as an opportunity to look at our entire pension strategy and make sure the schemes we had were actually fit for purpose before we embarked on the 2012 auto-enrolment plan. “With our current scheme, the contribution levels are actually more generous than the auto-enrolment levels. We looked at the cost implications of doing more than the minimum.
We also had to consider whether, if we off ered the minimum, [employees] would feel we were offering less than we should be. We decided to keep our current scheme, but offer staff who were not in the scheme the minimum auto-enrolment contribution level with the option to step up at any point into the full scheme.”
Employers can also use the pension plan review process as an opportunity to review their whole employee benefi ts package and the potential impact of any changes to their pension plan, especially on costs.
Christopher Barnes, pension consultant at Xafinity, says: “Pensions may be moving up in importance, so other benefits may need to be reviewed with regard to cost or structure. It is about taking a holistic view on pensions and auto-enrolment as part of the whole package.”
He adds that a review may be crucial for employers that offer group income and life protection linked to pension scheme membership, and may need to consider whether to continue doing so.
4. SYSTEMS
Payroll is one of the most important systems to look at because it contains information on workers’ pay and will make deductions for pension contributions.
Jeremy Levene, head of marketing at Ceridian, says: “Make sure your payroll system can manage the assessment, enrolment into the correct pension scheme and the deduction and calculation of contributions.”
An employer’s HR system may also require consideration because it must be able to deal with opt-ins, join requests and employee communications. The complexity of system requirements may make it advisable to seek outside advice or use systems that have already been developed to carry out certain functions.
Phil Mitchell, business change consultant and programme manager at Succeed Consultancy and adviser to Morrisons on its IT workstream, says: “A very early steer was that we wanted to automate as much as possible and introduce as little administration as was necessary. We used a pension provider that already had a self-service ability and it was easier to adapt that to do the opt in and opt out rather than design our own solution.”
Some employers’ systems may just require tweaking to handle auto-enrolment, but it is still important to allocate sufficient time to system needs during the planning stage.
Earnshaw says: “I cannot stress this enough. Everybody underestimated this, from our payroll provider to our internal team. I don’t think anyone understood how complicated it is.
“Plan, plan and plan the systems side of things. I would say we spent a disproportionate amount of time on the systems side and if I had the time again, I think we would start a year ahead of when we did. It really is that intense.”
Once the systems are in place, employers can start testing to ensure they work correctly.
Ruth Greenwood, human capital leader and leader for the auto-enrolment communications workstream at PWC, says: “Try to build in a margin for modifications. Ideally, the payroll systems should be in place and ready for testing three months ahead of the go-live date. This will ensure there is time to put right any unforeseen issues.”
5. COMMUNICATION
It is crucial for employees to understand in advance about auto-enrolment and why cash is being deducted from their pay.
Roy Porter, assistant director, distribution at the Nest Corporation, says: “How an organisation communicates is important. As early as possible is best so there are no shocks, because the last thing employers want is an employee not to read anything or know anything is happening and the first thing they find is a deduction from their pay.”
Susan Waites, a partner at Hymans Robertson, adds: “Auto-enrolment compliance communication requirements are very prescriptive in terms of content and timing.
Many employers will want a comprehensive communication strategy to help employees make informed choices and improve their return on investment.”
Viewpoint: Do not leave it too late
Charles Counsell,
Executive director,
Pension Reform Planning
This year has seen the start of a pension revolution in the UK. Auto-enrolment will have a positive impact for millions of people as they enter retirement.
Some of the country’s biggest employers have already passed their auto-enrolment duty dates. Hundreds of thousands are entering the planning stage, with roll-out continuing until 2017 for small and micro businesses, and 2018 for new businesses. The changes in pension law are not something for the future for HR professionals. Plan early is our key message.
The Pensions Regulator estimates it will take the average large or medium-sized business about 18 months to plan and get ready, including making the necessary adjustments to processes and systems such as HR, payroll and pensions. Leaving it as late as possible runs the risk of making preparations more costly and complex.
Our latest employer survey, conducted this summer, indicated that 28% of large private sector employers believe autoenrolment preparations will take less than three months. This is an underestimate, so there are still clearly a lot of employers that need help to understand their new duties. HR professionals play an important part in this.
Employers must know their staging date and develop a plan. Between now and then, they will need to assess their workforce, review their pension arrangement and communicate the changes to employees. The good news is there is an increasing amount of assistance out there for employers. Please use it.
CASE STUDY
Morrisons helps employees to save dough
When supermarket giant Morrisons began planning for auto-enrolment, the previously low employee participation rate in its defined contribution (DC) pension scheme meant that its task was transformed from one of simple implementation to off ering staff a whole financial education programme and new lower-risk pension scheme.
The programme, ‘Save your dough’, provides the retailer’s 135,000 employees with information on saving in general and for retirement. It includes in-store champions who are armed with further information on saving, two booklets about saving money and one on retirement saving, and a website.
A monthly employee survey found that 45,000 Morrisons employees have improved their finances in the past three to four months after using advice from the ‘Save your dough’ campaign.
In a further effort to encourage more staff to join its pension scheme, Morrisons decided to adopt a new cash balance pension arrangement.
The scheme will provide employees with a guaranteed pension pot at retirement, with risk shared between the organisation and the employee.
Since September, 10,000 employees have voluntarily opted into Morrisons’ pension scheme and a further 2,964 were auto-enrolled during October.