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11 Mar 2013

Pensions auto enrolment – this much we know

Six months on from the launch of pensions auto-enrolment, Iain Fox, employee benefits director of growing Bath financial services firm Fidelius, looks at the lessons businesses can learn from those on the scheme’s frontline.

On 1 October 2012, businesses with a payroll of 120,000 or more employees became the first companies to put their pensions auto-enrolment planning into place and roll the scheme out to employees. Six months on and many companies are yet to join the regime so it’s well worth taking stock of large corporations’ experience and consider how best to prepare your business for taking the plunge. 

Industry feedback across all sectors is that there’s no such thing as preparing for auto-enrolment too soon. The staging dates for even the very smallest employers to participate in the regime have now been confirmed (see www.thepensionsregulator.gov.uk) so there’s no reason to delay. Careful planning will be vital to seamlessly incorporating auto-enrolment into your employees’ existing benefit package.

A working party that engages the various parts of the business has been the key to success for many employers. Create a project plan with clear responsibilities for the staff members involved that signposts what needs to be done to ready your business, but is also flexible enough to deal with any unexpected surprises or changes. A plan based on a clear understanding of meeting the legislative requirements of auto-enrolment will allow you to make decisions that mitigate risk, avoid unnecessary costs and support your business’ wider objectives.

It’s important to understand the potential cost impact of auto-enrolment and agree a strategy for managing this– some additional costs such as increases in pension scheme membership and more administration are likely, but need not be damaging. The continuing difficult economic climate has led to a number of cost mitigation strategies being put in place by employers, including, for example, alternative contribution structures for new employees. Pay reviews between now and your company’s staging date may also need to take into account the potentially increased cost of pension contributions.

Perhaps the biggest challenge for many businesses already engged with auto-enrolment has been grappling with the HR and data management implications of the legislation. Many companies are looking to use ‘data hubs’ or ‘middleware’ software packages that bring together payroll, HR and pensions data; it is imperative that employers ensure these packages can support the use of employment contracts and meet the legislative requirements of auto-enrolment. But there is a potentially bewildering array of products available on the market. Be aware that not all data hubs are the same and many are as yet untested with regards pensions auto-enrolment data. Do your homework before you make a choice.

It’s also worth allowing time for wider strategy reviews. Auto-enrolment has triggered some employers to undertake more fundamental benefit reviews partly because itwill ultimately make pension provision the norm rather than a stand-out benefit. Making your benefits attractive in other ways will help you remain the employer of choice and with a creative approach, auto-enrolment can be incorporated into new, attractive packages that serve to retain and even attract top employees.

Whatever your company’s size, start the planning process now and use the opportunity to take a positive, fresh look at employee benefits. A lead time of 12 months at the very least is required to allow time to comfortably meet the challenges involved. And keep in mind the ultimate principle of auto-enrolment – we need to get more people saving for their old age. The Department of Work and Pensions has calculated that there are around 11 million people who are currently saving inadequately for later life. This alarming savings gap needs to be closed for everyone’s sake.

For more information on how Fidelius can help you manage pensions auto-enrolment, please call us on 0845 241 6500 or email john.calvert-jones@fidelius.co.uk

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