There are only a few months to go until the implementation of the law requiring employers to auto-enrol staff into a pension scheme. So far, the change has received little media attention, but HR, payroll and pensions professionals, especially in the biggest organisations, which begin the process in October, have already been preparing for as long as 18 months. So what can we learn from their experiences so far, and how smooth can we expect the implementation to be? We invited some leading HR professionals and industry figures to a round-table event, sponsored by Sage, to find out.

One unique aspect of auto-enrolment is that the way it is designed – with eligible employees placed into the pension, before being told what has been done and then given a limited time in which to opt out – requires seamless interaction between HR, payroll and pension professionals and their external providers. Data must flow quickly between the departments in order for the process to work and to avoid a disengaging experience for the employee, a challenge our panellists have been thinking about for some time.

“Eighteen months ago, when we started planning for this, our initial focus was on the overall benefits strategy and the appropriate vehicle that we were going to need to deliver it,” said Richard Murray of FirstGroup. “But now we have dealt with that and we know exactly what we’re proposing to do, it’s migrated to a different kind of project. It’s now all about data management, as far as we’re concerned.”

Lesley Williams of Whitbread will be auto-enrolling on a larger scale than most, as only 1,800 of her firm’s 36,000 staff are currently in the pension scheme. She agreed that it was the need for different specialisms to work together that made the implementation such a challenge.

“Historically, pensions projects have been exactly that – you stick them in the pensions department and somehow they manage to find their way through it without needing input from anyone else in the business,” said Williams. “This is not a pensions project – it’s a pensions, payroll and HR project, which affects all sorts of business processes. I think there’s an issue there that even some larger organisations are unprepared, because they think it’s a pensions project and therefore are not involving the people they need to involve in it.”

Getting the right technology in place through external providers is also a current preoccupation for all the panellists. Hugh Owens of Sodexo said that, although his company had been preparing for a long time for the change, it would only be when the software was delivered from their supplier – expected in the next month or two – that he would be fully confident ahead of their implementation date in January. Nevertheless, he was clear about how the company’s payroll processes would be reworked before then.

“We have 2,500 clients geographically dispersed in many sites across the UK and Ireland, and at the moment our units will process payroll at the last point they possibly can, which, if you are paid monthly, will be just before the cut-off date,” said Owens. “What auto-enrolment does is ‘front-end’ that process, because of the communications we have to do. So we have to re-engineer that. HR, as well as our operational managers, will be heavily involved in this.”

One factor that might be hindering companies’ preparation for the changes is that the responsibility could be falling between two stools, with neither HR nor payroll taking ownership of the project. Larger organisations, including most of those represented on our panel, have dedicated pensions teams that have taken the lead in the preparations. But where no such team exists, either HR or payroll will need to be the main lead – despite both having an important role to play.

“The project we’re running is 50 per cent process – ensuring that payroll has the right widgets in place to trigger everything at the right time – and 50 per cent around communications and how you deal with your employees,” said Williams. “One of the concerns I would have with payroll taking the lead is that they can do the widgets and numbers, but they can’t do the other side of it. But whoever is leading, the two sides need to be interlinked: you have to drive a payroll process when you send a communication to somebody and vice versa. Those are issues we’ve never had before.”

The CIPD’s recent Reward Management survey showed that, while two-thirds of organisations surveyed were engaging with their pension providers about auto-enrolment, only one-third were talking to their payroll providers about it, suggesting that payroll is not currently the lead focus. One reason for HR to be deeply involved is that, in addition to complying with the law, organisations should be using the opportunity to think strategically about the implications for the workforce, said the CIPD’s Charles Cotton.

“This is not just a pensions change; it’s an organisational change,” said Cotton. “Some organisations will look at it as just something else that they’ve got to do, and pay for. But others will think – can we actually lever some advantage out of this? It might help them to think about getting back to basics with their pensions and reward, asking why they do the things they do, and it could be an opportunity to communicate with their employees about the value of working for them.”

He pointed out that with the removal of the default retirement age, HR departments had every reason to take an interest in pensions for the purposes of workforce planning. Neglecting the issue could mean that their organisations would be increasingly staffed by people in their 70s who couldn’t afford to retire.

While none of the panellists had started talking to their staff about the changes yet, all agreed this communication was a key responsibility for HR. A typical approach may include a “teaser campaign” of posters or leaflets to get the issue onto people’s radar, followed by written communications and resources and information online. Line managers and HR practitioners would need to be prepared to answer -questions from staff in a wide variety of situations.

“Communication is going to be one of the biggest things to get right with people,” said Emma Gaffney of Sage. “We have to think about personalising that communication – one size is not going to fit all. People from Generation Y are going to think about their pensions differently and see it communicated differently to somebody from an older demographic. That’s going to require a lot of work.”

The conversations that employers have with their staff need to tread a fine line between information and financial advice, according to Lindsay Melvin of the CIPP.

“The message that an employer conveys to the employee is key, because they can’t induce the person to leave the scheme, but on the other hand they can’t make any promises about what the return on the investment will be,” said Melvin. “So I think an employer from a low risk point of view will probably say virtually nothing at all, because that way they can’t be accused of pushing the employee one way or the other. There’s a danger that they will give very bland advice to their employees, because they can’t take the risk of being sued if the investments don’t perform the way they should do.”

But Tom McPhail, head of pensions research at Hargreaves Lansdown, disagreed with this, saying that employees could be much more proactive if they chose to.

“I would struggle to identify anyone today to whom it would be right to say ‘you shouldn’t join that pension; don’t take that contribution’,” he said. “For just about any profile, the benefit of the contribution and tax relief will mean it is worth your while. So I think it is fine for an employer to go to the employees and say ‘I think you should all join. I think you should all join because it will be in your interests to do so.’”

Part of the reason good communications are essential is overcoming barriers to saving that are currently stoked by negative media coverage, believes FirstGroup’s Richard Murray. “When you pick up a newspaper, the general standard of reporting of pensions in the mainstream press is shockingly bad,” he said. “Every mention of a final salary pension is prefixed by the word ‘gold-plated’ – I don’t even know what that means – and every mention of a DC scheme is prefixed with ‘inferior’. There are too many mixed messages, so it’s not surprising that people’s understanding of pensions is just not there. I think that will need to change.”

So will auto-enrolment actually achieve its long-term aims of raising awareness about pension saving and setting most of the population on their way to a more secure future? The panellists were agreed: the reform is really only the first step, and even if it is a success, there is much further to go in terms of changing attitudes towards retirement. The majority thought that in order for real change to be effected, saving into a pension would eventually need to become compulsory.

“Compulsion will happen eventually. I’m sure about that,” said Lindsay Melvin. “Apart from anything else, it will make it easier for organisations to comply with the laws; the rules are so complex that an SME is going to really struggle. The challenges are immense: in a way, it will be easier to have simple rules where everybody is in and you’ve got to do it.”

The relatively low contribution rates enforced by the legislation – 8 per cent of salary when employer and employee contributions are combined – will need to go up for savings to be viable in the long term. This would only happen if people were properly engaged with the process, said Tom McPhail.

“Even some of the better contribution rates at the moment are still not going to be good enough for a lot of people,” said McPhail. “Then there’s the investment strategy: most 20-somethings would be best off going for emerging market equities, but you can’t do that as a default fund: it has to be a conscious decision. So for a whole host of reasons, you do need a degree of member engagement. You can’t just default people all the way through the system, stick them in and forget about it. That’s why employers will need to offer more than good governance: they’ll need to keep saying to staff ‘you need to worry about this, it’s your responsibility’.”

He concluded: “I think if you come back in 10 years’ time, attitudes towards retirement saving will have changed significantly. I think what we’re seeing today are the foundations for what will eventually be a functioning pension system again. It’s just going to be a rather painful birthing process.”
                                                                                             

List of participants

Charles Cotton (performance & reward adviser, CIPD)
Emma Gaffney (reward manager, Sage)
Rob MacLachlan (editor, People Management, chair)
Tom McPhail (head of pensions research, Hargreaves Lansdown)
Lindsay Melvin (chief executive, Chartered Institute of Payroll Professionals)
Richard Murray (group pensions manager, FirstGroup)
Hugh Owens (director of reward, pensions & employee relations, Sodexo)
Lesley Williams (group pensions director, Whitbread)

Pensions Auto-enrolment Roundtable event in association with