Large employers have walked the line, now smaller organisations must get going, and fast. But are they making best use of early planning and benefitting from lessons learnt? Asks Steve Herbert, Head of Benefits Strategy.

As we are well into 2013, many HR Directors are planning for the challenges of the year ahead. And the need to fully comply with Pension Auto-Enrolment duties remains at the top of many ‘to do’ lists. Some readers may be surprised that this is still an issue. After all, Auto-enrolment launched with a spectacular blaze of publicity on the 1st October for the very largest UK employers, so presumably smaller employers are now fully conversant and prepared for this legislation? Unfortunately, that may not be the case. A Jelf Employee Benefits survey in May 2012 showed that an astonishing 69 percent of employers were not yet ready for Auto-Enrolment. This was only a one percent improvement on the same survey statistics exactly 12 months earlier, which is evidence of surprisingly little traction even as the legislation moved ever closer. Even more concerning was the fact that 12 percent of respondents did not yet know when their employer staging date actually was! Now this would be perfectly acceptable for the smallest UK employers, but the respondents were comprised of employers with between 50 and 50,000 employees. For most in this grouping Auto-Enrolment is only a matter of months away, with many enrolling in 2013 or early 2014.

But surely this time frame still provides ample opportunity to digest, plan for, and implement a response to these new requirements doesn’t it? In reality, even 18 months of preparation might be a challenging time-line for many. So let’s look at the evidence to support this assertion. Joanne Seagers, Chief Executive of the NAPF, recently described the Auto-Enrolment legislation as “eye wateringly complex”, whilst Jane Earnshaw, Head of Reward at ASDA, admitted that the supermarket chain underestimated the auto-enrolment project, and that they would have started much earlier if they had appreciated the issues involved. And it should be remembered that those large employers that have already enrolled have the luxury of significant financial and administrative resources. This may not be the case for many other organisations. Another factor that HR Directors should appreciate is the available capacity within the UK pensions industry to assist employers. The industry is going to be stretched in the coming years as thousands of employers seek advice and assistance to deliver the very best Auto-Enrolment solution for their organisation and employees. The prudent employer will therefore seek this assistance at an early stage. So, given the above factors, it’s evident that planning for Auto-Enrolment should start just as soon is practically possible so that you have the best chance of success. And once you have started your planning, one of the first questions may be: “Auto enrol into what?”

Many employers are expecting to enrol the new pension savers into an existing company pension scheme. But there may be a hidden problem here. Such schemes have often been offered only to higher grades of employees, and were priced accordingly. For instance the insurer may have expected only high paid, and high contributing, senior executives. If the same scheme is now extended to those eligible for Auto-Enrolment, who will often be lower-paid, with lower contribution levels, this could trigger a review of the scheme terms, potentially resulting in higher scheme charges for all members. Not a good message to send out to your employees.

So it may be that employers will need to offer more than one scheme in some circumstances. This is where The National Employment Savings Trust (NEST) may come into play. NEST was designed as the catch-all pension scheme for those employers who did not have a suitable pension scheme on offer to all employees. The charging structure within NEST is competitive, and the scheme provides good, if limited, investment choices coupled with strong Governance. Two features make NEST an oddity in the pensions landscape though. Firstly, the offering is currently hampered by some legislation-led restrictions, and the second factor is that NEST has an obligation to accept any saver, regardless of the commercial viability of doing so.

Several competitors in the NEST space have also now emerged, with The People’s Pension and Now: Pensions being the best known. These schemes are similarly targeted towards the Auto-Enrolment population, but have slightly different offerings to that of NEST, so are worthy of consideration by the employer seeking the most advantageous solution. Getting the choice of scheme, or schemes, right will be key to the success of your Auto-Enrolment strategy. So there is plenty for the HR Director to ponder and deliver in 2013. Compliance with Auto-Enrolment is a given, but the organisations that emerge as eventual winners from this change are likely to be those that react swiftly and decisively to produce the best results for all concerned.

Steve Herbert,
Head of Benefits Strategy
Jelf Employee Benefits