Thanks to auto-enrolment, workers all over the UK are sleeping better at night knowing they’re getting some company pension. But meanwhile, their employers are tossing and turning.
Providing staff with pensions is a costly business as, effectively, it means giving them a pay rise. And the timing isn’t exactly ideal. Thousands of companies are still weakened from the strain of the recession and are struggling to find extra money for pensions contributions.
Implementing auto-enrolment is both complex and expensive: on average auto-enrolment will cost small and mid-sized UK businesses up to £28,300 and take up to 103 man-days to set up.
Only a fraction of this work is associated with the actual pension provision, though. Most of it is tied up with the heavy burden of administration that auto-enrolment brings.
But shrewd businesses are saving both time and money by choosing the most efficient technology systems to help them become auto-enrolment compliant.
As an employer, you must bear the administrative burden of deducting contributions from each employee’s wage packet and channelling them into their pension fund. Get this wrong and you could find yourself hit with fines of up to £500 a day (£10,000 for large businesses).
And if you think pension providers will hold your hand all the way, you can think again. As an employer you must ensure your payroll system knows somebody’s earnings and their age so they get the right amount of pension contributions.
To bridge this gap, many of the companies that have already been “staged” into auto-enrolment have acquired a technological solution called “middleware”, which is a link that sits between their HR and payroll systems, and their pension scheme provider or administrator. It has the potential to fully automate and outsource auto-enrolment, and can be very effective.
Most of the major pension providers support middleware (with the exception of the National Employment Savings Trust and Legal & General), but a growing number of industry experts believe it will die an early death.
Not only could online systems save time and money, they also reduce the chance of errors
A company using middleware support can expect to pay £50 to £60 per person per year, with an upfront additional fee of as much again. But this is looking increasingly expensive in the fast-moving world of pensions technology.
Traditionally, payroll and pensions have been separate beasts, but this is changing and more employers are using payroll products for pensions. Lee Hollingworth, head of defined contribution (DC) consulting at Hymans Robertson, says employers currently using middleware are likely to switch within the next 18 months. This is because middleware isn’t fast enough at dealing with data, meaning the danger of payroll errors is increased and an extra headache is created for employers.
A growing number of businesses are turning to new online payroll software to get staff auto-enrolled. Employees details can be gathered and processed in just a few clicks, and the risk of a mishap and the eye-watering bill that can come with pensions administration can be reduced.
Jonathan Dowden, a product manager at technology provider Sage, says integrated systems are more streamline and reduce the risks of administration errors if payroll and pensions are “all in one place”.
And Paul Bannister, chief executive at BlueSky Pensions, claims employers will have 60 per cent less administration bogging them down if they deal with it themselves through an online portal. BlueSky has launched a new online pension service which assesses the workforce and provides ongoing communications with them for £7 per head.
Some systems are desktop operated while others are “in the cloud” which means they can be accessed online from any location – options which both come free of charge.
Not only could such systems save time and money, they also reduce the chance of errors which, if left unresolved, can lead to nasty bites from The Pensions Regulator, the watchdog for company pension schemes.
They are particularly suited to companies with weekly payrolls and, as well as simplifying auto-enrolment, streamlined online systems could help your real-time information requirements, which means you have to inform HM Revenue & Customs about PAYE payments when these are made in the payroll process, rather than at the payroll year-end.
IT’S A WRAP
The most generous employers don’t stop at pensions when it comes to employee benefits. Corporate platforms are a flexible alternative to traditional company pensions, which encompass a range of opportunities to let staff save for the future.
They are a relatively new product that relatively few employers have so far signed up to. For most, simply meeting auto-enrolment requirements is a tall enough order for now.
Pension providers have spent millions of pounds developing these platforms, which they hope will become the future of workplace savings. Rather than just a pension, employers and employees can contribute through payroll into a choice of ISA, pension, and fund and share accounts.
For example, back in 2012, Standard Chartered Bank launched a corporate platform offering staff a 10 per cent employer contribution, which they can split between pension and ISA.
Corporate platforms can guide and educate staff about money, and help them make good decisions. Many offer interactive tools to get people better engaged with their savings.
And this is the key to encouraging staff to build themselves a bigger retirement pot, says Michael Whitfield, chief executive of Thomsons Online Benefits. “Recent LSE [London School of Economics] research found that a clear and recurring strategy of communication and open dialogue significantly increases an employee’s engagement level with their workplace pension, and improves personal contribution levels above four per cent,” he says.
“It also found that those employees benefiting from improved communications, as part of a total reward model, were more aware of their need to improve their own knowledge of the complexities of pensions.”
A further benefit is that staff can manage their accounts online or with their smartphone, which may be particularly attractive for an employer with a young, mobile-savvy workforce.