AM I a finance director or a pensions director? I really do wonder sometimes. Interserve, a support and construction services company, is a diverse international organisation with more than 30,000 UK employees. Therefore, pensions are invariably an important consideration from both the perspective of our workforce and the financial impact that it has on us as a group.
Life (and, particularly, regulation) in the pension arena never stands still. From scheme funding, to IORP II, to updated IAS19 standards, to the “new” Fair Deal, to cessation of contracting-out from 2016, to the ever-changing tax reliefs available on pension savings, to “pot follows member” – there has been a constant flow of changing requirements in the past few months. And clearly, this list would not be complete without mentioning auto-enrolment.
With a staging date of 1 February 2013, Interserve was in the vanguard of early enrollers. With 25,000 un-pensioned employees, we found ourselves enrolling just under 10,000 eligible employees into NEST. The resource, cost and commitment to achieve successful auto-enrolment on such a scale was significant.
As a group we had a dedicated project team tasked with delivering our auto-enrolment solution. Auto-enrolment was brought to the board’s attention in July 2011 and work commenced in earnest in January 2012. My advice to those companies that are not yet on the auto-enrolment road is start early to avoid disappointment and be prepared for some pain along the way.
Could the regulations surrounding auto-enrolment have been more complicated? Probably not. We identified more than 40 different scenarios which would trigger a change in an employee’s auto-enrolment status or require a response by our systems performing auto-enrolment processes and calculations. Our pension experts struggle with this level of complexity: what chance do our affected employees have?
Well, the government’s hope of inertia from employees (leading to a high take-up) seems to be bearing fruit. Interserve, like many other companies, has experienced a very low initial opt-out rate of less than 7%. But do employees have any understanding of what their pension savings are likely to provide them with at retirement?
Communication is of critical importance and we hope Interserve’s dedicated auto-enrolment microsite, which had in excess of 15,000 hits in the year to 30 June 2013, together with NEST’s “non-pensions technical” documentation and website, will have helped our employees understand that the current rates of “enforced” pension saving are just the beginning.
Auto-enrolment does not stop there. With legislative reviews (hopefully ironing out some of the existing flaws), three-yearly re-enrolment for those individuals who have opted out and a staged increase in contributions, time, effort and resource will continue to be used. Interserve is more than up for the challenge and we will to meet our obligations, but it is an ongoing distraction for all of our management.
In many respects, government is making businesses do its work for them, to communicate the rationale behind “enforced” pension savings for almost all employees, and to design and implement the systems to bring this to life. Could an extension to national insurance not have brought about a similar and simpler result without passing more burden to UK plc? Maybe. But simplicity does not seem particularly high on the agenda at the moment – witness the latest plan to introduce a “pot follows member” automatic transfer system for pensions worth less than £10,000. This concept seems flawed (the administrative burdens this would impose on a company are quite eye-watering) and the government readily admits that there are technical issues that still need to be resolved.
The onus once again will be on business to pick up the cost and manage the administrative complexity of this process.
If I could make one plea to government, it would be to provide us with a period of stability and certainty in relation to pension provision both from a financial perspective and also from our employees’ perspective.
I seem to recall that we had something called “Pension Simplification” in 2006. The annual and lifetime allowances were set for the next five years and most assumed this would continue in an upward direction beyond 2011. However, the cost of pension tax relief on the Exchequer meant that this entire direction of travel has subsequently been reversed. From April 2014, we will see a reduction in the annual allowance from a peak of £255,000 to £40,000 and a reduction in the lifetime allowance from a peak of £1.8m to £1.25m.
If nothing else, pensions should be a long-term matter requiring careful and consistent planning. But how can employees plan for their retirement with this moving target? And how can businesses continue to respond to changing and increasing regulatory requirements?
In answering these questions, I anticipate that pensions will continue to consume much of my time in the coming years.
Tim Haywood is the FD of FTSE 250 support services business Interserve