Auto Enrolment – Some Thoughts

Mon, 16 Sep 2013
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Auto enrolment is a hot topic amongst HR professionals at the moment. In this blog we aim to explain (albeit briefly!) what Auto enrolment actually is and offer some handy tips from people who have been through the process already.

What is it? Auto enrolment is a scheme which was established to try and encourage people to save more money for their retirement. Employers are required to enrol much of their workforce but employees do have the right to opt out of the scheme and have their membership cancelled. Larger employers have to enrol first and they have been doing so from 2012, the smallest organisations will start from April 2017.

Challenges: Heineken’s Head of Pensions[1], Carol Young said a key challenge she found was drawing together all the different stakeholders who work on pensions together to ensure they were all working to the same agenda and timeframes.

Rachel Brougham, Head of the Auto-enrolment team at Mercer[2], pointed to the importance of payroll data being kept up to date and that employee data has been cleansed in general. The change in pension scheme can flag any discrepancies in employee information and such irregularities can really slow down and complicate the changeover in general.

Some companies have pointed to the difficulty in interpreting the rules around the new legislation even when enlisting the services of specialist consultancy firms. The Department of Work and Pensions is probably the best port of call for any queries.

Another key issue is the time involved in overseeing the changes. End to end it took Heineken 18 months to overhaul their pensions offering, most experts suggest a ball park estimation for most businesses would be 9-12 months. It’s important to not give in to the temptation to simply put off the process and it can take a lot longer than you initially think.

Employee Engagement:It’s also important that the process is communicated effectively to employees. Not only to ensure you are keeping up with your business’ legislative obligations but so that a confusing and complex subject matter is explained to people with as much clarity as possible.  John Lewis set about creating an engagement campaign, which involved conducting an international marketing campaign and internal survey.  This was all done with the view of changing the way people think about pensions and to ensure they understood how the changes would affect them positively. Dinesh Visavadia, Head of Pensions at John Lewis said “If you engage with the workforce in a positive way, with a positive experience, you will get a positive outcome and very low opt out rate”. Another idea is to hold pension forums and liaise with trade unions to help people understand the changes. Communication really is the key in ensuring people embrace the change.

Compliance: is another key concern, it’s important to keep records which allow a full audit to be undertaken if necessary. Guidance offered by the DWP offers advice on the practical implementation of the scheme but companies should ensure they protect themselves and in-build compliance into their implementation.

More broadly, it offers businesses a great platform to showcase their other benefits to staff and ensure they are getting the most from the company’s reward scheme. Employees should be offered the appropriate channels to consult outside of your organisation, for example the Money Advice Service for any queries they may have. This should enhance engagement in the scheme as people are more likely to trust the advice given as it would be impartial and not associated with your company. This should be taken as an opportunity to think about your pension offering in general and what you want to achieve from them. This could be a chance to review your services and get a better deal for your employees and conduct a broader audit on benefits in general.

Final Top Tips:

  • Find out what proportion of your staff Auto-enrolment will apply to, this will require analysis of the workforce’s age and salaries
  • Establish when you need to begin the process, what timescales will you be working to? The Pensions Regulator will write to you 12 months before. Remember you will need to write to staff informing them of any changes
  • You will need to establish what contributions will be. Your company may need to undertake extra budgetary procedures in order to facilitate the extra costs involved. Costs are ‘phased in’ and you will need to know how much you will be contributing over the 4 years that Auto-enrolment is introduced.
  • Research pension schemes and check your current one meets the new criteria.

Auto enrolment is here to stay and it’s better to prepare for such challenges fully.  Hopefully some of the points raised will help you make the switch over as painless as possible.

[1] In an interview with the NAPF Website

[2] From an article on Employee Benefits