In a previous article on theHRDIRECTOR website, workplace pensions reform was described as “a train crash’ waiting to happen”, but in a response to the article, the question is rephrased, “is its bark worse than its bite”?

NorthgateArinso (NGA) consulted at length with The Pensions Regulator on Workplace Pensions Reform. Bill Thompson, Principal Business Consultant at NGA explains how, with the right preparation, businesses may not find this legislation as painful as anticipated. Workplace Pensions Reform, WPR and auto-enrolment are all names for the upcoming pension reform that will enable workers to be automatically enrolled into their employer’s pension scheme without any active decision on their part. Starting in October 2012 with the largest companies, the government hopes that employers will be contributing to the pension schemes of 25 million workers via auto-enrolment by 2018. 

This is clearly a vast task and change is always a major upheaval but, rather than being a “train crash waiting to happen” as one pensions consultancy described it, WPR has the potential to show its worth as a well-considered and tested reform.  The Pensions Regulator has worked with the software and payroll industry to come up with a set of regulations, meaning that businesses will need to adapt rather than re-write existing systems they have in place for pensions. In fact, we have worked closely with The Pensions Regulator to design software for WPR, helping them get through some of the initial teething problems.

There is no question that there will be changes required of businesses which will be tough and that there will also be costs – particularly in terms of time – incurred. This is added to the fact that while companies have known this change is coming, they are not fully aware of the processes and procedures which need to be put in place. The good news is that some careful preparation can resolve many concerns businesses might have.

One thing preparation can’t change is the fiscal and supplementary process cost to introducing WPR that businesses unfortunately need to accept. There may also be an increased workload, particularly at the take-on stage. To get to grips with the changes, employers need to familiarise themselves with the new legislation and what it means – it may be useful to attend seminars or request a one-to-one consultation with an HR services consultant, who can walk you through the changes step by step. They also need to consider how the scheme will work in practice and whether automation can help minimise the workload.

To prepare, businesses should find out when they go live so that they can build out a solid timeline of action. The first step should be to review their pension schemes. They will need to administer an auto-enrolment scheme and either use NEST or another provider.

Secondly, companies need to review their employee base. How many employees will be affected and how many of these earn enough to be auto-enrolled? The businesses that will find the transition hardest are those who only have a few people in a pension scheme, for instance if 90 percent of their staff are low rate or hourly paid workers then moving all of these over to a pensions scheme is going to a huge task. Seeking advice ahead of the transition will be of great benefit.

Thirdly, organisations should consider the implications of WPR for their business in terms of additional costs such as employer contributions and additional workload for their payroll department. For companies where WPR is going to mean a significant stretch in workload, outsourcing could well be the solution.  Fourthly, employers need to understand their responsibilities and ensure that their pensions provider produces the correct documentation at the right time. Businesses have the choice between running WPR out of payroll or via their pensions fund.

As The Pensions Regulator has worked closely with the Payroll Industry, we would advise companies to run their pensions scheme from the former, and consider outsourcing if the workload is too much. For pensions to provide the service, they will need to produce additional software, which might not sync with existing systems, causing additional problems. In short, WPR is a reform that has been carefully thought through. There will inevitably be some teething issues but, fundamentally, with considered preparation and the right support, businesses needn’t feel apprehensive as long as they prepare fully in advance.