Encouraging companies to get ahead of the game should be at the top of advisers' agendas this year, writes Mark Pemberthy, director at JLT Benefit Solutions.
Many organisations will enter 2013 with auto-enrolment preparations on their to-do lists. We have long recommended that planning should start 18 months before staging dates and this is now echoed by the pensions regulator. However, 18 months may not be a realistic project timeline for companies starting their planning in early 2013.
Some companies will not have 18 months left before they stage, but those that do face a completely different challenge. Those 18 months takes us to the middle of 2014 and a significant spike in the number of companies staging each month. There are currently only a few dozen stagers each month. As we get towards the end of 2013 this will increase to well in excess of a thousand.
However, between April and July 2014, more than 30,000 companies with between 62 and 250 employees will stage during a four-month period, peaking in July at more than 12,000 companies.
Auto-enrolment in five simple steps
This will cause capacity challenges for all aspects of the pensions industry and therefore any organisation staging in this window should seriously consider accelerating their plans and getting ahead of the game.
Almost all organisations underestimate the scope of work involved in complying with auto-enrolment and while large businesses can throw people, time and money at the problem, smaller organisations just do not have that luxury.
In order to implement an auto-enrolment solution in less than 18 months it is important to have a structured approach. We recommend a five stage process to ensure all aspects are considered.
1 Understand the cost: Adding new pension members and meeting (or exceeding) pension contribution requirements will increase costs for all organisations except those few who already have very high pension participation. There are also additional expenses associated with auto-enrolment which will need to be budgeted for. Commission is no longer an option for paying for support for new pension schemes. Nevertheless, there are many options open to companies in respect of how they meet their obligations and it is vital to understand the cost implications of each before deciding on the most appropriate strategy.
2 Set a strategy: Most organisations will make changes to their pension scheme as a result of auto-enrolment. Setting a clear strategy is an important aspect of an efficient auto-enrolment solution and organisations should consider what overarching principles and specific objectives they wish to meet when considering potential changes. Is the objective compliance and cost control, or is there a wider pension or reward objective? Does this vary for different parts of the workforce, existing members, non-members and new hires? It is also an opportunity to consider the impact on other benefits such as life assurance, health cover and flexible benefits.
3 Get the right scheme: Most organisations have existing pension schemes and, in the majority of cases, these are likely to be used as qualifying schemes for the existing members. However, there may be issues in using these schemes for new auto-enrolment joiners. Some pension providers may decline taking auto-enrolment joiners or enforce an increase in management costs such that they are not competitive against other options such as the National Employment Savings Trust (NEST). In-house or self-administered schemes may also incur prohibitive additional costs if used for auto-enrolment of all eligible employees. Therefore, it is vital that organisations make sure their schemes are suitable for auto-enrolment, or introduce new ones which better suit their objectives.
4 Automate auto-enrolment: The majority of organisations do not have the manpower to undertake the complex series of ongoing tasks and communications manually and will need technology-based solutions. Pension scheme and payroll providers are developing auto-enrolment functionality; however, these vary widely and it can be challenging to coordinate multiple systems. Benefit systems are designed to manage auto-enrolment seamlessly and are highly relevant to organisations seeking to implement a solution in a short period of time.
5 Implement and communicate: Embedding auto-enrolment changes will take time and need to be carefully planned out in relation to the staging date. Implementation may well require consultation with employees (a minimum of 60 days for pension changes, longer for contractual changes) as well as testing and implementation of new systems and processes. The quality and clarity of communication with employees will also have a significant impact on the outcome.
Get ahead of the game
The staging date cannot be moved backwards, therefore organisations wishing to implement an auto-enrolment solution relatively quickly will need to plan well and execute effectively. Success is also likely to require a lot of support from advisers and providers – particularly those with practical experience.
For organisations and advisers alike, getting ahead of the game will minimise the risk of being affected by capacity challenges facing all pension providers when auto-enrolment starts to take full effect in 2014.
>> Find out more
For more news and analysis on this subject click here
Number of companies staging each month
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress