· 2 min read · Features

Auto-enrolment: the 'millennium bug' of the pensions world?


Just over a decade ago the ‘Millennium Bug’ saw many companies paying over the odds to IT firms at the last minute to check, correct and update their technology.

Roll the clock forward almost 12 years and every company that doesn't already provide a pension for their employees could be facing the very same issues. Those that are not preparing for their auto-enrolment staging date now may ultimately pay more or, in the worst case scenario, end up with a sub-optimal solution, as there is a finite number of HR and payroll experts capable of setting up and supporting a full auto-enrolment programme.

From a HR perspective, auto-enrolment is conceptually very simple as it has the same basic principles as all payroll and employment benefits platforms. In practice, however, it is likely to be a highly complex and time-intensive process to manage, but this could be very good news for HR experts as, come the end of 2012, anyone familiar with employee communication and complex administration platforms could be in high demand.

The logistical issues of auto-enrolment will impact on all employers over the coming years, but certain sectors will have the greatest challenges. Sectors such as retailing, manufacturing, call centres, hotel, catering and leisure industries will be particularly affected for a number of reasons: they have a significant number of lower paid staff, a large number are part time, a high percentage of earnings come from overtime or contract work, and finally, these sectors have the highest staff turnover. In summary, they face the highest number of adjustments.

Based on our knowledge of payroll schemes in similar sectors, we estimate for medium and larger firms that the auto-enrolled scheme may literally involve thousands of changes a year.

It's difficult to predict what the consequences of auto-enrolment may be in terms of how employers will approach it. But, with the average part-time worker earning just over £8,000 a year and the threshold for enrolment being £7,495, one can see how this could become a complicated situation for many.

However you may choose to handle it, the platform you design, purchase or outsource will need to have the flexibility to accommodate potential changes in both regulatory requirements and corporate policy. It is also worth giving some consideration for larger multi-disciplined employers to future-proofing the technology to accommodate potential changes in corporate strategy, as those sectors that are most affected are also those that tend to change structurally with sales, acquisitions and merger activity.

One extra point that many HR professionals won't necessarily have much experience of is the regulatory burden that is likely to accompany the auto-enrolment process. Although yet to be clearly defined, there will be a requirement for full regulatory compliance and reporting; de minimis it will be The Pensions Regulator and HMRC, but it could also include other stakeholders - for example, shareholders, unions, staff associations and so on.

It is also necessary to consider the actual communication process as for many employers this scale of employee communication will be new. Existing pan-employee channels, such as payroll, may be appropriate for certain employers but, for others, a completely new process may need to be established.

To coin the phrase 'the devil's in the detail' my recommendation is for HR teams to begin looking at their processes now. A good starting point would be their payroll records, examining how many staff members would qualify and approximately how many would have required adjustments, as well as considering what systems you could currently deploy to contact these employees. Finally, I would also advocate looking at how you plan to administer the process, as building a bespoke system is neither easy nor quick, and often not cost effective.

Alan Foley, director of Equiniti ICS