After what has felt for many like an eternity, auto-enrolment has finally arrived. As the UK’s largest employers complete the process, now is an ideal time to consider some of the lessons learned so that employers with auto-enrolment on the agenda for 2013 can avoid some of the pain and pitfalls that may occur along the way.
Anish Rav, Employee Benefit Consultant at Barclays Corporate and Employer Solutions leads us through the major considerations.
A recap on auto-enrolment
Auto enrolment legislation came into force on 1 October 2012 and the regulations mean that employers will have to automatically enrol their employees into a pension scheme – i.e. without the employee having to make any decision.
The key requirements of the legislation are:
- All employers will need to comply with the auto-enrolment regulations, regardless of size
- The exact date by which an employer must comply, known as the Staging Date, is based on the number of employees as of 1 April 2012. The Staging Dates for employers with between 500 and 49,999 employees will occur chronologically throughout 2013
- A minimum level of pension contributions will be required based on ‘qualifying earnings’ (earnings between £5,564 and £42,475 for 2012/13)
- Contributions will be phased in; initially a minimum of 1 percent of qualifying earnings will be required from both the employer and employee, eventually rising to a 3 percent employer contribution and a 5 percent employee contribution (including tax relief) from October 2018.
- Employers can select an alternative ‘self-certification’ contribution level which meets one of the three tiers set out in legislation
- Employers can be more generous, potentially reducing the contribution required by the employees.
- Employers will need to select a ‘Qualifying Scheme’ (or schemes) in which to enrol employees.
- Employers will need to communicate auto-enrolment to employees
The requirements above may appear straightforward enough, but as with most new legislation, the devil is in the detail; and the experience of the largest companies in the UK shows us that the time and planning required to ensure compliance should not be underestimated.
So how do you ensure compliance with the auto enrolment regulations in the most cost effective and efficient manner? Consider the following checklist:
1. Commence planning early. The importance of commencing planning early is crucial – many of the UK’s larger employers started planning two years in advance of their Staging Date and whilst the timescale is likely to be shorter for smaller employers, at least 9-12 months are required for a successful implementation.
2. Identify an executive sponsor. Auto-enrolment is not just a pensions issue and will affect all parts of the business including HR, Payroll, IT as well as impacting the wider business strategy. Therefore it is crucial that an executive sponsor is in place who can see the big picture and consider the overall impact of a decision on the business.
3. Establish a project team at outset. Creating a project team comprising both internal and external stakeholders is crucial. Experience shows us that where various functions have worked in silos, without the oversight and coordination of a project team, considerable rework has had to take place, costing time and money.
4. Agree your auto-enrolment strategy as soon as possible and select your preferred pension provider(s). The demand for pension professionals and provider support is going to outweigh supply and therefore those employers that are planning ahead will have access to the best resources, support and perhaps most importantly, the best terms. Providers are already being selective regarding who they provide terms to and in some circumstances, employers risk facing having unsatisfactory terms or being declined.
5. Consider the impact on wider employee benefit strategy and ancillary benefits. Benefits such as life assurance have traditionally been linked to pension scheme membership and if this is still the case, employers may inadvertently increase the cost and administration burden of providing these benefits. Since auto-enrolment is something that all employers have to consider, those employers who take it as an opportunity to review the wider employee benefit strategy are more likely to gain a competitive advantage in the long term.
Key to this is a ‘future proofing’ of your benefits - it is about understanding the benefits that employees value in a multigenerational workforce and targeting them so that employers receive a return on their spend in terms of greater productivity, retention and recruitment of talent.
6. Review your processes. The experience of larger employers has shown that almost without exception, payroll and other employee related processes, have had to be amended, for example, the new joiner process. In many cases, employers have needed to purchase new payroll systems or upgrades. Employers also need to decide how they will assess the eligibility of employees for auto-enrolment.
The rules surrounding which employees need to be auto-enrolled and what counts as qualifying earnings are complex and there are a number of systems being offered by pension providers, payroll providers and third parties which all claim to undertake the necessary calculations. Our experience is that the functionality and costs of these vary considerably and it is important to find the right solution that meets the individual employer’s requirements.
7. Communication. Effective communication to employees both in the lead up to and post-implementation of auto-enrolment is a must. For many employees, this will be the first time that they will be enrolled into a pension scheme. If they do not understand what is happening, a significant amount of time will be spent answering queries and could potentially lead to loss of goodwill. Auto-enrolment presents a great opportunity for employers to think about the messages that should be communicated to employees, not just in relation to pensions, but regarding employee benefits in general. Employee engagement will become increasingly important and a well thought out employee benefit communication strategy can pay dividends.
Learning the lessons of effective implementation of auto enrolment should be a priority for employers approaching their Staging Date in 2013. There are many issues to think about and those raised above are just a few key considerations. So whilst the concept of auto-enrolment may be simple, its implementation is not, and the sooner you get started, the better.
Auto enrolment – seven steps for a successful implementation
- Commence planning early
- Identify an executive sponsor
- Establish a project team at outset
- Agree your auto enrolment strategy early and select your preferred provider
- Consider the impact on wider Employee Benefit Strategy and ancillary benefits
- Review your processes
- Communicate effectively to employees
Jamie Lawrence is Insights Director at Wagestream, a financial wellbeing app that makes money less stressful for people in work. Founded by a group of leading financial charities, Wagestream's mission is driven by their social charter: everything they build must improve financial wellbeing. Jamie was previously Managing Editor of HRZone,...