Current issues in Pensions (1 November, Leeds): Review of session on 'Auto-enrolment and Consulting Hot Topics'

Reap the benefits of auto-enrolling employees by planning early - presented by Richard Sweetman

After years of planning by successive governments, the auto-enrolment regime has finally arrived for the very largest employers. For the rest, the new requirements are being phased in over the next few years so action is needed now for businesses to get the most out of the new rules.

Firstly Richard explained how some of the details are complex so many organisations will require help from their advisers.

The Department for Work and Pensions (DWP) has recently published further regulations and guidance, but knowledge gaps remain:

• The definition of “workers” is fairly complex and requires scrutiny; and
• Companies using open defined benefit (DB) schemes for auto-enrolment still have things to think about before 2017.

Although a pensions matter for employers, there are significant human resource (HR) systems and payroll issues, and it is therefore concerning that there remains a lack of knowledge of the new requirements among many payroll and HR systems providers.

Richard focused attention on how organisations can use the new regime to increase engagement levels in the workforce. 

Many workers will not value their new pensions, but are unlikely to do anything about it. The presenter described these workers as representing a “blind spot”, where resources are wasted on staff who do not appreciate the value of the pension contributions but nevertheless accept their lot. The new regime provides an opportunity for companies to ‘shrink’ the blind spot; by raising awareness of the new pension savings, the workforce may become more proactive in exercising choice. This can be achieved using effective communications.

 Businesses need to plan their strategies early by doing the following: 

• Identify business objectives;
• Check how the new requirements fit with existing policy (Are ‘twin-track’ benefits scales to be used for different groups?);
• Decide on the contribution levels;
• Benchmark how the arrangements compare within the industry; and
• Update communications.

It’s worth comparing the services offered by the various auto-enrolment providers as there is a wide gulf between the services included. Some will provide bundled member communications, legal compliance and the services of a specialist implementation team, whereas others offer much more limited support.

Existing schemes need to be certified as “qualifying schemes” for auto-enrolment purposes. Employers can self-certify these in certain circumstances, but actuarial support is needed for schemes with more complicated benefits – such as hybrid schemes, cash balance plans or some contracted–in salary related schemes.

The presentation concluded with a discussion of the prevalence of companies introducing new DB schemes to satisfy the auto-enrolment requirements. This approach had not been commonplace although there had been one recent example of a supermarket chain that launched a cash balance plan for new hires, with existing employees being auto-enrolled into it from 2017.