It has been almost three years since the advent of auto-enrolment, but to what extent has the pensions reform changed the payroll and HR landscape? Has it posed the humongous administrative challenge that so many industry professionals feared? And what does the future hold for SMEs now approaching their staging dates?
In this in-depth feature, Cascade HR’s auto-enrolment specialist Owen Williams, looks at the progress made by organisations throughout the UK, before considering the role that technology has played in driving progress. He also analyses findings from a survey jointly commissioned by Cascade and Pay & Benefits Magazine, which suggest, perhaps surprisingly, that companies are not as perplexed by auto-enrolment as the headlines would sometimes suggest. This special report therefore digs beneath the headlines to uncover what professionals really think.
If we cast our minds back to the time when auto-enrolment was first announced, there’s no disputing the mist of uncertainty that clouded the payroll and HR landscape. Employers of all shapes and sizes understandably scratched their heads, swamped with feelings of confusion and fear over what the pensions reform really meant for the world of personnel management.
A number of organisations will also openly admit that they dug their heads in the sand, unsure of how to tackle the legislative development. By far the overriding concern was how to manage the increased administration that auto-enrolment would inevitably bring, followed by the level of specialist knowledge that was required and the need to ensure legislative compliance. The Pay & Benefits Magazine survey ‘Auto-Enrolment – what do you really think?’ also revealed that cost was an additional worry.
But employers were not the only ones to face auto-enrolment with a certain degree of apprehension. Reputable HR and payroll software suppliers also acknowledged the weight of responsibility that lay on their shoulders, to help businesses deal with the evolution.
This complex subject area had to be analysed by vendors with a fine tooth comb, if technology was to relieve the administrative intensity of the resulting processes and help drive employer compliance. The Pensions Regulator (TPR) thankfully issued a guidance tool for developers, but with approximately 300 pages it felt more like a space shuttle manual. That said, TPR’s taskforce did provide significant support during the preparatory phase, holding seminars for software specialists, providing fictitious working examples for vendors’ testing processes and seeking collaborative feedback throughout. It’s unsurprising in hindsight. They no doubt pre-empted the role that technology would play in ensuring auto-enrolment’s success. And they realised that, because the initiative was completely new, there could be no pilot exercise as is usually the case when new functionality is introduced to market. It was therefore crucial that software houses were as prepared as possible.
When analysing the findings of the Pay & Benefits research, it seems that, overall, the technology sector didn’t do a bad job. Of the survey respondents to have already been affected by auto-enrolment, only 1.1% believes they’ve dealt with the pensions reform less than adequately – in fact, 87.91% feel they’ve managed the process quite, or very well.
When digging a little deeper into the reasons behind such positive performance, 95.6% of professionals state that they have used technology to help them, with HR and payroll software the most prevalent choice throughout. It is also important to note that 82.41% claim technology has been some help – if not a vast support.
A survey sample cannot encompass every single industry viewpoint of course. And none of the questions returned a resounding 100% response, so there is still work to be done. But the greater attention we pay to these research findings, the more we see that HR and payroll teams have adjusted to the pensions reform better than we’ve perhaps been led to believe.
So why have so many people had such skewed views, surrounding the extent to which progress is being made?
It depends what statistics are honed in on, of course. Only recently, for example, financial services magazine Money Marketing published news that TPR is issuing an increasing number of fines to non-compliant employers. It is said that, in the first three months of 2015, 198 businesses were hit by £400 fixed penalty notices – a staggering amount when considering the figure stood at only three fines, six months previously. Now such reports should not be disputed, of course, and legislative breaches should indeed be penalised where a careless approach has led to the rules being broken. But what the somewhat scaremongering headlines often fail to convey is just how many organisations are not struggling with auto-enrolment, and, from our experience, how supportive TPR has been in ensuring employers continually enhance their knowledge and rectify any unintentional mistakes. Perhaps that positive and proactive approach isn’t as interesting to read about. But it should be acknowledged and praised nonetheless.
We’re now approaching the time when auto-enrolment is set to affects SMEs and micro businesses too. Undoubtedly a number of such employers will also have been guilty of delaying the decision making process, for fear of the time, money and technology investment required. And they could be forgiven for this, given their staging date will have always felt such a long way away, and resources are not always in abundance.
It’s therefore helpful to read articles with a sense of urgency to them, encouraging SMEs to act quickly whilst there’s still some preparatory time left. But it is important to note that not all small employers will have been affected by the auto enrolment ‘blindness’ that some reports have suggested. Many will have been proactive in their research, assessing the technological options that exist for them, from purposefully-designed software solutions to sophisticated spreadsheets. Some will have even gone ‘above and beyond’ by providing an attractive pension – way before their staging date – to circumvent the potentially inevitable auto-enrolment burden altogether. Not every SME has been slow to take action.
Could it be suggested that the auto-enrolment landscape is perfect? Of course not – which facet of business ever is? Most vendors worked hard to release a robust version 1.0 of their software, to ensure clients with more immediate staging dates were equipped as quickly and effectively as possible. But the majority of suppliers also had roadmaps for their technology – continual development plans that evolve as real world usage patterns are more clearly understood and employer feedback is gleaned.[
New functionality is continually being required too. Larger organisations, for example, are now approaching their re-enrolment dates, so market-leading HR and payroll system vendors have been busy developing tools to help them manage that proficiently, and compliantly. And this evolution will not stand still
The pensions legislation itself is also being continuously refined because, despite a thorough initial consultation period, some things were inevitably missed. The pensions lifetime allowance, and the penalties that could come with losing HMRC tax protected status for such savings, is just one of the things that was not previously accounted for.
However changes implemented on 1 April 2015 mean there is new leniency surrounding the matter. This all needs to be factored in to software systems’ algorithms, and employers’ approaches.
On the subject of employers, the feeling of unease has not entirely disappeared. This is unsurprising – not just because the legalities of auto-enrolment are constantly evolving, but because the initiative is still in its relative infancy. Indeed, despite upbeat statistics throughout the survey, 41.96% of participants still have some concern surrounding the effective management of auto-enrolment moving forward – 13.39% in significant amounts. 37.5% on the other hand don’t feel too much concern, and 16.07% have no worries whatsoever. In this respect, the findings are fairly mixed.
A degree of caution is healthy though. It omits any sense of complacency, which no employer can afford. And it seems to fit with the particularly British mind-set of continually striving to do a better job, an approach which should be praised.
So, for UK organisations yet to reach their staging date, employers who are dissatisfied with their management of auto-enrolment so far, or those who simply wish to improve upon their current approach, what advice can be heeded moving forward?
The criteria that survey respondents would look for, when selecting a technology provider to tackle auto-enrolment, provides a helpful steer. The supplier’s auto-enrolment knowledge ranks as the over-riding factor (55.26%) closely followed by the provision of processes to support legislative compliance (51.79%); a user-friendly interface and the ability to reduce administration (both 45.54%); and continued customer service support (41.07%).
A fully integrated HR and payroll solution can add further value here too, and not just because of the seamless flow of data. Software developers with knowledge and empathy for both business functions will naturally ensure the technology is process-driven, accurate and efficient – a powerful ‘assessment engine’. But they won’t neglect the importance of communication and engagement either. Everything should be easy to understand, well-documented and stored with an audit trail, for the benefit of HR and payroll teams, and employees. This builds knowledge and empowerment, safeguards the employer from any accusations of non-compliance and saves time in the long run because unnecessary queries are avoided. Solution providers who failed to acknowledge the people element of auto-enrolment have experienced varying degrees of success to date.
The flexibility of the system should also be assessed. Products built using the latest .NET technology, and/or solutions that are cloud based, will be able to accommodate legislative developments with relative ease. If simple algorithmic changes are deployed, sometimes without the employer even noticing, this provides utmost convenience and peace of mind when it comes to compliance.
One final important thing to remember is that, however intuitive a chosen software product is, employers will benefit from the allocation of a dedicated resource who will champion auto-enrolment within the business. This is a vast change for the personnel landscape after all, so the ‘human touch’ must not be overlooked.
It should be that champion’s responsibility to understand auto-enrolment inside out, so that they can disseminate their knowledge throughout the business and be the ‘go to’ reference point, as and when queries do arise. That champion should look for an equivalent auto-enrolment guru within the software provider’s team too, because the power of collaboration cannot be underestimated.
In fact, collaborative efforts are perhaps the reason why the industry has made progress when it comes to the pensions reform. The Pensions Regulator, employers, professional bodies such as the CIPP and CIPD and software vendors who offer pension auto enrolment software, have continually shared thoughts and knowledge, seemingly committed to the same goal. It could even be argued that, considering the immense complexities associated with auto-enrolment, we’ve, in fact, all taken it in our stride.