READING the Pensions Regulator’s report about the early stages of auto-enrolment being rolled out across the UK, everything seems rosy ten months into the process. But is it?
The report largely asked respondents about their ‘awareness and understanding’ and, as none were past their staging date – companies face different deadlines to adopt, based on their size – this is fair enough. However, everyone with practical experience will tell you that application and theory are very different and if I had a penny for every time I had heard that “the devil is in the detail”, my own retirement plans would be much further advanced. There are key stages to auto-enrolment alongside key stakeholders that need to be considered.
• Implementation: Everyone has to some degree been learning this one as they go. Employers realise that a project team that crosses payroll, HR and finance is a minimum requirement. Too many times, one department has been working in isolation which means decisions are made that aren’t practical, or worse.
• Payroll: Providers have been slow to tackle auto-enrolment and employers relying on them have been sorely disappointed, but that appears to be improving. However, no payroll provider has it all covered – using salary exchange, postponing more than once, communications to employees and pension providers are the gaps seen most often and you need to know which ones you have because you have to fill them.
• Costs: A recent study stated that 85% of employers saw an increase in their pension costs. Even if you assumed no extra pension contributions were made, then the costs of administering or implementation planning had to ensure this result. The only surprise is that it is only 85% – has salary exchange really made that much difference?
• Capacity: We are hearing about ‘capacity crunch’ and it is said that there won’t be enough people to implement. One of the consequences of this is that advisers who haven’t been involved previously are purporting to be able to help employers and we are seeing some of this resulting in the non-compliance of the employer. Providers are starting to show signs of capacity crunch, but most of this seems to be in preparation for what’s to come.
• Systems: Some auto-enrolment systems are still being oversold and inaccurate information is being passed on because what they initially set out to do hasn’t proved possible, practical or commercial. If you are using a system (pension, payroll or middleware provider) to administer auto-enrolment, you should ensure that you see it working – don’t assume screen shots and offline systems work.
• Opt-out rates: All the stats indicate auto-enrolment is working. Just 10% of employees are opting out and, although this is from the largest employers, I don’t think it will vary too much as we work our way down, purely because of the action required. I have heard a couple of comments that there will be an employee backlash when some of them get their first statement and realise that a 2% contribution hasn’t solved their retirement issues, but hopefully good communications (and maybe a good stock market performance) may alleviate this.
Flicking back to the Pension Regulator’s report, awareness and understanding are lower when the employer is smaller, but this should improve as we get closer to their staging dates, particularly as not having the time isn’t seen as a suitable excuse – and you need to plan several months out.
David Pye is a senior consultant at Broadstone Corporate Benefits