Planning for pensions auto-enrolment: are you ready?
Ken Anderson, March 05, 2012
In October 2012 we will see the introduction of major pension reforms in the UK but auto-enrolment is not just a pension issue; it will impact HR, payroll, pensions and finance functions.
Broader reward and benefit provision will also be affected. To assist you in determining your organisation's auto-enrolment requirements, I have considered some of the broad challenges.
Payroll and HR considerations
Auto-enrolment will impose significant complexity on payroll and human resource functions. Cost, risks and workload will increase and 'peak' once every three years. Employers will need to decide whether to recruit and train resource to address the requirements,
Consideration should be given to the adequacy of existing human resource and payroll systems. It may be possible to outsource this activity to a specialist auto-enrolment administrator who can undertake all, or part, of the auto-enrolment process on your behalf. A key advantage here is that expensive and time-consuming changes to existing human resource or payroll software are not required.
Avoiding inducements and prohibited activity
It will be important not to take, or fail to take, any action, with the purpose to attempt to induce a jobholder to opt-out of a pension scheme. Perception as well as reality is important here. Care needs to be taken with communication programmes and Salary Exchange and Flexible Benefits arrangements.
If an employer blindly follows auto-enrolment requirements, they may inadvertently fall foul of broader legislation (e.g. indirect discrimination). Similarly, care must be taken not to breach the Data Protection Act when maintaining records as to whom has been auto-enrolled and opted-out. TUPE legislation will also impose complexity.
Mitigating costs and risks
Employers need to be able to balance the risks and benefits of specific future contribution rates against the costs of various options for change. Understanding the implications of different scheme designs from a cost and risk perspective will be crucial. It will be important to explore alternative strategies to arrive at the combination of measures that most closely suits your corporate objectives, priorities and timelines.
When reviewing the design of benefits provided to employees, it is important not to lose sight of your corporate objectives. Cost is of course important, but cost can only really be assessed against the value that employees place on the benefits you provide from a recruitment, retention and motivational perspective.
Auto-enrolment will be complex, but addressing it correctly could increase the value that your employees place on the pension and broader benefits you provide, maximising your return on investment in your key resource; your employees.
As all HR professionals know, the employment market is extremely diverse and accommodates business models that range from those focussed on a small number of business premises, such as offices or factories, to those where the majority of their workers are employed off-site, such as catering or contract cleaning.
Similarly, the methods of employee communication that employers have at their disposal range from a sophisticated intranet and 100% email coverage to cascade communication - largely by word of mouth.
Some employers will already have communication tools that are fit for purpose, subject to some changes. But, for others, the challenges may never have posed a problem before, such as whether all staff are capable of comprehending simple financial terms associated with auto-enrolment.
Where employers operate from large numbers of locations, or even from no location at all, communication channels may need to be created or outsourced so that they pass regulatory scrutiny and, just as importantly, ensure that your employees appreciate the value of the benefits that you are providing them with.
Ken Anderson, head of defined contribution solutions, Xafinity