The process of auto-enrolment continues as small to medium-sized employers hit their staging dates.
But as the third anniversary of auto-enrolment approaches in October, larger companies who staged near the beginning of the whole process now have to contend with re-enrolment.
This means that every three years job holders who initially opted out of auto-enrolment can be re-enrolled into a pension scheme.
The process is nowhere near as onerous as it could have been. For instance, average opt-out rates have so far been below 10%. This is a far cry from the 30% to 40% drop out rates initially predicted by the industry.
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Further reading: New hurdles for auto-enrolment advice
NEST chief executive Tim Jones describes the situation as “encouraging” and says it “fits more broadly with our research that shows pension saving is fast becoming established as a national priority. We’ve seen support for auto-enrolment rise across the board over the last few years, even among workers who’ve previously opted out.”
However, despite this, re-enrolment remains a sizeable task that needs to be planned for.
Muse Advisory client director Ian McQuade says there are two types of companies dealing with re-enrolment. Firstly those which had a very high take up but low opt-out rate. For them, McQuade expects re-enrolment to “be a relatively straightforward process.” However, those employers who had a high opt-out rate could experience difficulty.
“They will have the bigger population they need to communicate with,” says McQuade. I think the biggest reaction for them is going to be from their employees who say ‘I told you I don’t want to be in the scheme, why are you putting me back into it?”’
Apart from tracing and communicating with people who have previously opted out; technology also could be a problem for some according to SimplyBiz head of workplace solutions Tom Nall (pictured).
He uses the example of the early months of auto-enrolment when the technology developed by the pensions industry and the payroll sector worked differently. The pensions industry focused on calendar months while payroll software ran tax years and tax periods.
“In 2015 that conflict could crop up again for some of those solutions,” says Nall. “Things like calculating part payment periods is just a big faff, which will be challenging for some payroll and HR managers looking to tackle re-enrolment.”
Sanctum Software director Iain Oliver agrees says re-enrolment could prove problematic at firms where payroll staff have moved on to other firms since auto-enrolment started.
He says: “A lot of sizable employers have payroll departments where they have staff turnover of at least 25%. So you have got this new situation where people are coming in and they have not been given a proper briefing about what they are supposed to do. Those people will come in with little payroll experience and probably no idea.
“One of the biggest challenges for the largest employers was maintaining the AE process when they had high turnover in their auto-enrolment departments.”
Yet The Pensions Regulator (TPR) has a more positive view of how the industry has managed payroll systems.
Executive director Charles Counsell says: “Most of the first employers to reach their re-enrolment dates have large in-house HR/payroll and pension teams who have three years’ experience of automatic enrolment and assessing their workers on a continuing basis. It’s reassuring that these largest firms are getting on with their preparations for re-enrolment and inquiries to date are limited.”
Another issue that employers will need to be wary of is the quality of data they have on employees.
Sanctum’s Oliver argues mistakes made in the initial auto-enrolment process could be compounded by re-enrolment. “If they have got some process errors on auto-enrolment, this is the juncture where they are going to add to those errors. You are almost building errors on errors,” he says.
Similarly the approach taken to workplace assessment systems is a factor which could make re-enrolment tricky.
The industry has not got a unified system for re-enrolment. Oliver adds: “There are some systems that sit separately from the provider and payroll system. Some of those are extremely good and some of them are incredibly hard to use.”
The industry has to work around any administrative problems. National Association of Pension Funds policy adviser Sarah Woodfield says: “Naturally there were a few teething problems and our members are discovering now they come to re-enrolment that some of those teething problems remain.
“Many of these issues are linked to differences in IT systems between employer and provider; in time as legacy systems are replaced or modified these differences may ease, but for now providers and employers will continue to find effective ways to work around them.”
Not everyone is convinced employers are looking to move provider due to the hassle and cost involved. Normally a firm will change the assessment technology they use rather than move the entire pension scheme.
Nall says: “Some providers or most providers have created their own assessment technology. Some have got middleware and others have just bolted something on to their system.
“Some of those systems have had problems at times. Generally they are okay now with one or two exceptions.”
Conversely Lighthouse Group Employee Benefits managing director Roger Sanders contends more employers are looking to change provider but find it hard to. “They are finding they are trapped because the scheme they have purchased from any well- known life company comes with belts and whistles and a locked in middleware platform,” he says.
He adds: “It is a huge problem for an employer to move provider when the middleware is controlled by the life company as well. It cannot be underestimated.”
Increasingly TPR and providers are taking a harder line on data processing and collection. “As the volume of companies having to comply with auto-enrolment has increased the providers have become much firmer in terms of the data standards they ask for and the standards they want,” says McQuade.
“The onus is on the company and data providers to ensure that the right data goes to providers. In many cases those have had to be resolved because you cannot wait to sort them out as things progress,” he continues.
The TPR says its research shows large pension schemes, including multi-employer schemes such as master trusts and group personal pensions, are better placed to meet the standards they believe are necessary for good outcomes for retirement savers.
Furthermore, the TPR argues the past three years have been broadly positive. “Two years ago, as we moved towards the first peaks in numbers of mediums reaching their staging date, commentators predicted problems with capacity and had dire warnings about providers’ ability to cope,” says Counsell.
“In fact, we’ve been encouraged at how the payroll and pensions industry has responded to the demand over the last three years and at how they are gearing up for the hundreds of thousands of employers still to come.”
Still hurdles remain for the industry regarding re-enrolment. The first is keeping people enrolled as their contributions increase.
Labour peer Lord John Monks observes: “Early evidence suggests people are okay paying their bit but when those amounts start to rise it is going to be more problematic. That is going to seem a big chunk out of their wages.”
Similarly the awareness of pensions remains low among the general public and there are concerns small employers will struggle with auto-enrolment.
Counsell argues the best solution is to be proactive: “Our headline message to employers has remained the same for the past three years – don’t leave things until the last minute and risk non-compliance.”
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Figures from the CBI on re-enrolment have shown:
- Payroll and administration have been particular problems for businesses. The CBI found nearly 50% of firms found payroll system upgrading either very challenging or challenging.
- 67% of survey respondents found managing opt-outs and opt-ins either very challenging or challenging, and managing refunds either very challenging or challenging for 54% of firms.
- Two in five (40%) businesses see low levels of employee engagement as the main barrier to auto-enrolment’s success.
- Another 68% of firms either very concerned of concerned about employees opting-out or failing to take full advantage of their scheme.
- While opt-out rates have been lower than expected, just 64% of employees are not taking advantage of the highest contribution rate on offer to them by their employer. [/su_note]