Although small firms are still embarking on auto-enrolment, the largest companies are preparing to re-enrol their staff. Pensions Insight asked 40 large pension schemes for their concerns. Louise Farrand reports
Administration is by far and away the biggest challenge associated with re-enrolment; 60% of scheme managers surveyed by PI listed it as their top concern.
“Let’s be fair – auto-enrolment is an administrative headache and therefore anyone who isn’t going into it without worrying about making sure they get everything right is likely to be upset later on,” says Ian McQuade, a client director at Muse Advisory.
Schemes were most concerned about avoiding errors in their systems (37%). A further 23% said that their biggest worry is making sure their internal team and provider have enough capacity to support the increased workload caused by re-enrolment.
‘Errors in the system’ sound relatively innocuous. But a small error in the contribution rate could result in a miscalculation of members’ benefits – an error that could build up substantially over the long term.
Administration errors have always been one of the biggest pitfalls associated with the auto-enrolment process.
“If I were in [a scheme’s] shoes and knowing what a nightmare the calculations around auto-enrolment can be, that would be my biggest concern as well,” says McQuade.
McQuade says the whole process is “a lot more complex than it should be”.
In some ways, re-enrolment will be even more complicated than putting auto-enrolment in place.
“When schemes went through it the first time, they could apply the checks across the whole piece, across the whole system, make sure everything worked,” says McQuade.
“When you’re dealing with re-enrolment, you’re looking at a subset of members, you are therefore probably having to pull the data out to do some analysis. It’s those things that I think are going to make it more complicated.”
Yet it’s not all bad news for schemes. The large schemes that are about to re-enrol their members were the pioneers of auto-enrolment, blazing a trail for others to follow. They thought carefully about re-enrolment even while they were going through auto-enrolment, says McQuade.
Reinventing the wheel?
At the same time, being early to the auto-enrolment party can work against large schemes.
Technology has moved on since they first enrolled their members. At the time when auto-enrolment began, the payroll industry was criticised for being behind the curve and failing to offer workable solutions so that pension schemes could manage their commitements.
“For the stagers in late 2012/early 2013, a lot of the payroll providers just weren’t ready with their auto-enrolment software,” says Martin Thompson, director and head of benefit consulting at Premier.
“Some have caught up, but certainly we’ve had a few enquiries over the past couple of months, people saying: ‘We want someone to come and look at what we’ve done because we think we’ve done it right but with re-enrolment around the corner, it’s a good opportunity to check we’re doing it in the most efficient way’.”
Providers are creaking as a result of freedom and choice”
Premier offers a health-check service to scheme managers who want to check their systems are up to scratch.
Thompson reports that most schemes pass the check up, but that often their systems are more cumbersome than they need to be.
Yet large schemes wanting to review their systems could hit a capacity wall if they use a mainstream provider.
Such providers are likely to still be auto-enrolling small employers and simultaneously trying to adapt their systems to comply with the government’s freedom and choice agenda.
“The capacity crunch is something that’s been talked about and talked about. Everyone has said, ‘It’s coming, it’s coming, it’s coming’, but it hasn’t quite arrived,” says McQuade. “But you can see that providers are creaking as a result of freedom and choice. The fact is, they are all flat-out on everything else.
“Freedom and choice is relatively complex and means a lot more system changes; a lot of them aren’t ready for it yet, they haven’t got the processes set up and all the systems in place to support it. So I think it’s fair to say that the industry is creaking.”
We’re all in
Communications are another significant challenge that schemes associate with re-enrolment. Convincing people to stay in the scheme when they had opted out previously was the biggest challenge for 23% of respondents to PI’s survey.
“A lot of people followed the letter of the regulations on day one,” says Thompson. Now, schemes understand the rules better and are increasingly using their discretion – particularly when it comes to communications, he explains.
“A lot of the letters that were originally put together around auto-enrolment were pretty dull because people followed the Pensions Regulator’s templates to the letter. Now I think people have worked out what they can realistically tailor and make understandable for people.”
Yet despite the various challenges, PI’s readership is quite optimistic about re-enrolment. Overall, 81% were either somewhat or very confident that their administrative processes would hold up under the strain.
Good news, but Thompson says that this level of optimism could partly be explained by the fact that PI’s audience is predominantly pensions managers – whereas a lot of the day-to-day record-keeping responsibilities are down to HR.
Ultimately, it’s clear that schemes are embracing the challenge of re-enrolment and despite some administrative worries, remain optimistic that the project will be successful.
Moreover, the fact that the rules have remained consistent – albeit complex – has probably helped schemes to ensure they are implemented effectively. “I think the paint’s dried and it’s not necessarily the colour you thought it was going to be but you’re not going to go back and do it again,” says McQuade.
He concludes: “Would you start from here? Probably not. But the fact is, we are here and actually, changing the rules now would cause probably more pain for more people than just sticking with what we’ve got.”