A feature by Ian Smith – Editor of Pensions Expert
Auto-enrolment reform, which kicked off in 2012 for the UK’s largest companies, has placed pensions firmly in the in-tray of HR directors and decision-makers.
By creating an obligation to enrol eligible workers – those between 22 and state pension age, who earn more than the minimum tax threshold and work in the UK – the government has put the onus on employers to close the retirement gap. Before the reform has even reached many smaller employers, the Department for Work and Pensions has added further layers of regulation. Effective from April 2015, the government will set a 0.75 per cent cap on the default funds of all qualifying auto-enrolment schemes.
Labour’s announcement this week that if elected it would reduce the lower earnings threshold from £10,000 to £5,772 – thus making a further 1.5m lower earners eligible, some at minimal contributions – demonstrates how quickly the goalposts can shift. It is also difficult to ignore this year’s Budget, which fundamentally changed the end of the retirement journey for these new savers. The chancellor abolished the effective requirement to buy an annuity at retirement, and guaranteed savers free and impartial face-to-face guidance on their options. These options will have to be worked into schemes for all members, either by the employer, or perhaps more likely, by their provider, which will again impact on cost. But back to the central challenge. For those smaller employers that do not have a separate pensions function, precisely those being targeted by the government through auto-enrolment, it is often the HR director that has been called upon to lead this process.
A major challenge for employers has been making sure their payroll systems have been up to the task of managing the data requirements of the reform, to make sure the right employees are being auto-enrolled. It is often said that auto-enrolment is more of a payroll issue than a pensions issue. There was much criticism before 2012 of the readiness of the payroll industry to make sure their software could produce the information necessary to determine eligibility.
Indeed, when the Pensions Regulator released last month its first public report into non-compliance with AE by soft furnishings company Dunelm, the central issue was the readiness of its payroll, which had “significant delay in achieving compliance and completing registration”. These issues were compounded by the fact that it had a monthly payroll and weekly payroll.
Another significant and telling challenge was the departure of key staff involved in the AE project at important stages of implementation. Having written numerous case studies and attended conferences where employers shared their auto-enrolment successes and failures, continuity of decision-making on this area seems to be crucial for those employers that have come out the other side. Another big challenge is communicating auto-enrolment to those uninitiated millions entering the world of workplace saving. Even before the first companies came to auto-enrol, managers were aware of the task ahead. In December 2011, I chaired a discussion of the challenge of communicating these complicated benefit structures.
“The language is very important and the focus needs to be on what it means for the individual,” said Lorraine Tillett, HR manager at specialist lender CHL Mortgages, at the time. Eleanor Chapman, people and culture manager at Instant Offices, said the commercial property broker used outside expertise to educate its young workforce. “What helps me to engage people is creating an offer and giving them somewhat of a menu option, rather than saying, ‘right, this is the information you need to know’,” she said.
Where employers have come away from the process patting themselves on the back, is where they have seen substantial engagement from employees, over and above the apathy that is required of workers to stay in their new pension scheme. Transport operator FirstGroup, for example, saw monthly unique visitors to its benefits portal double since its AE campaign kicked off, after using a personalised, multimedia campaign to engage its members. If this all seems too much, how about putting it off? The statutory three-month postponement period has been used by many employers such as facilities provider OCS Group to deal with the implementation of auto-enrolment for its tricky work patterns and variable earnings.
The employer used three-month average earnings to make implementation smoother, its HR director Jane Drysdale told January’s CBI Pensions Conference. The pace of reform seems to quicken, rather than slow down, leading to groans from those putting the reform into practice. But the main advantages for smaller employers yet to auto-enrol are the case studies – good and bad – of how others have fared, which hold clues for those attempting to get it right, first time around.
Further information box:
A good place to start is the Pensions Regulator website, where you will be able to find out your company’s ‘staging’ date – when you are due to auto-enrol – and information on how to get ready for auto-enrolment.
The Pensions Advisory Service has also fielded many calls from employer and employee alike on the new workplace duties. Its website contains facts and figures on the basics of AE.
The Department for Work and Pensions has created a “key facts” document for employers and individuals, including the lines that employers cannot cross, such as incentivising workers to opt out.
The state-sponsored pension scheme, the National Employment Savings Trust, or Nest, is not by any means the only scheme that your company can use, but it does have a public service obligation to take any employer that wishes to use it. Its website also has information on the reform and other communication materials that could be a useful reference point.