23 January 2013
Back to news homeAutomatic enrolment involves multiple business operations and without joined-up thinking and collaboration, businesses may fall short of their requirements.
After ten years of hard effort from across the pensions industry, automatic enrolment finally went live on 1 October. NEST is already working with many household name employers including BT, McDonalds and Travelodge as well as Gondola Group, home of Pizza Express, ASK and Zizzi. But the hard work is only just beginning. Over the next five years more than 1.2 million employers and up to 11 million workers will be automatically enrolled into a pension scheme, many for the first time.
Graham Davey, Central Accounts Manager at NEST commented, ‘NEST was built with simplicity and ease of use in mind, from the initial set-up to managing the opt-out process. NEST also offers delegated access, which lets employers appoint advisors or payroll organisations to run aspects of the scheme on their behalf. They can also delegate different tasks to different areas of their workforce, such payroll or HR.’
So, how do pensions and payroll work together?
‘Automatic enrolment is transforming workplace pensions, but will more than likely require investment in payroll processes and systems, whether in-house or outsourced. The payroll function is normally best placed to examine the age and earnings of a workforce and determine the number of workers to be automatically enrolled. In addition, payroll can establish the date that workers become ‘eligible’, calculate pension contributions and manage pension contribution refunds for workers who’ve chosen to opt out,’ comments Davey.
The role of the payroll industry is extensive although may have been overlooked by some. Karen Thomson, associate director of policy, research, and strategic visibility at CIPP comments, ‘The word ‘pensions’ normally means the payroll department switch off. They carry on with their daily payroll activities ensuring employees are paid accurately and on time, while adhering to the vast amount of payroll legislation. However, automatic enrolment is different. All of a sudden the information the payroll system holds will be vital to enabling employers to comply with their automatic enrolment obligations.
Often businesses view payroll simply as a mechanical tool to pay people. But as Graham has highlighted payroll and HR systems hold a vast amount of information that’s really useful for businesses. All the areas Graham has mentioned can be processed by payroll. However employers may also need other tools and payroll can normally provide the triggers. Previous research carried out by CIPP in July 2012, indicates most payroll software has this functionality.
What this means is that when an age band or earnings threshold is reached the payroll system will alert the payroll team that an action is needed. This includes communicating to the employee about their entitlement and entry into a pension scheme. So communication with the pension provider will be needed. And don’t forget the employer needs to decide which pension scheme it’s using and when the employee will be automatically enrolled. To do this the employer will need to work with a number of parties. These are likely to include payroll for the data, HR for communications, pension professionals for scheme information, finance for the budget and IT for technical updates. There’s potentially also need for a third party to carry out some or all of the actions to ensure obligations are met.
My key message to employers is to involve the payroll manager or your outsource provider if you have one and ensure a project team is set up at least one year ahead of their staging date. The team must consist of all the relevant parties to ensure a smooth and successful implementation. Start now…’
What can your pension provider do to help?
NEST’s latest service release unveils some exciting updates, especially for payroll providers. NEST has developed an enhancement that provides an easy way to transact with NEST through an exchange of files. This can be used by payroll teams, as well as employers and IFAs. Using the new file transfer facility NEST will provide data for opt-outs, enrolments and contributions. This means employers can fully integrate their day-to-day business with NEST into their back-office systems.
Gavin Perera-Betts, head of product design at NEST commented, ‘As a payroll provider or large organisation, there’s a lot of information to share in order to meet automatic enrolment duties. We’ve developed a secure file transfer solution where the entire process is carried out with an exchange of files. So taking enrolment for example, employers send us an enrolment file and we send them back a file that shows what happened. It shows which workers were successfully enrolled, and if appropriate, which workers failed to enrol and why they failed. All this is delivered in a suitably generic, CSV file template that anyone can use. This enables the receiver to code their own systems to receive the file, understand the codes that are in it and integrate the information into their own systems.’
The update will also benefit employers navigating the opt-out process. NEST can send them a file on a daily basis, which they can use to update their system. In order to use the new secure file transfer users will have to ensure they have the right data in the right format. But once done, this preparation should streamline the meeting of automatic enrolment duties, saving time and effort and making the whole process a lot simpler.
Key facts about NEST:
• The government is currently introducing reforms that mean employers will have to automatically enrol most of their workers into a workplace pension scheme that meets or exceeds certain standards. They’ll also need to make a minimum contribution for many of these workers.
• NEST, which was established by government as part of these reforms, is a national defined contribution workplace pension scheme available to all employers to use to meet their new duties. It is designed around the needs of people who are largely new to pension saving, with clear communications, low charges and easy online tools and services. It is run as a trust-based scheme, on a not-for-profit basis, and the trustee has a legal duty to act in its members’ interests.
• NEST has a public service obligation to accept any employer (whatever their size) who wants to use the scheme to meet their duties, as a sole scheme or alongside other provision.