News

Technology comes to the fore

31/01/2012

Robin Hames
Head of Technical, Marketing and Research
Bluefin Corporate Consulting

The forthcoming reforms to employers’ pension duties seem to have been with us forever. As ever the gestation period of the legislation has been considerable and it has been interesting to follow the changing emphasis placed on the varying aspects of the reforms.

While bundled under the term ‘automatic enrolment’, the new employer duties are much broader and undoubtedly pose a challenge to most employers and trustees. Initially the choice of pension scheme seemed to have the highest profile; driven in part by the creation of the proposition that has become NEST. Indeed such was the emphasis that the terms NEST and automatic enrolment became almost interchangeable in some circles as if the new product was somehow the embodiment of the reforms themselves.

As curiosity for this new development subsided and the grip of recession continued, focus began to shift towards the increased headline costs; the degree to which automatic enrolment will deliver greater employee scheme membership is unsurprisingly of significant interest to finance departments across the country.

Furthermore the range of options available to employers does necessitate a thorough examination of the explicit costs of contributions under the new regime. With a variety of contribution rates and definitions of pensionable salary available, the team behind our own Auto-enrolment Financial Modeller has certainly seen a significant increase in demand for outputs across the range of acceptable options.

What stands out though, and is very much supported by this survey, is a growing appreciation of the underlying complexities and hidden costs inherent within the reforms. As employers explore the variety of options available to them under the reforms – the nature of scheme membership and the definition of pensionable salary for example – so too does an awareness of these implicit complexities.

Administration and communication go hand-in-hand and the degree of innovation required will be driven by some of the decisions led by this examination of the explicit financial costs of the reforms. Compliance with all the administration, communication and record-keeping requirements of the new employer duties will certainly be a challenge in the years to come.

In the survey, only one in four respondents felt that their HR and payroll systems function well together. A similar number confirmed a complete lack of integration between these two systems or indeed a lack of any system at all dedicated purely to support the HR function.

This obviously leads into questions around data management. It was interesting to note that of those who had considered how data would be managed in the brave new world, the consensus was that technology would have to deliver the solution. For any employer of a reasonable size and/or with a reasonable degree of staff turnover, it has to be said that the idea of administering all of the new employer duties through a paper-based process does seem optimistic, to say the least.

However the question of who would deliver that technology revealed a breakdown in that consensus. The majority of those getting to grips with this issue are hoping or relying on their payroll provider to deliver a suitable middleware solution with others seeking stand-alone solutions or expecting their pension provider to deliver in this area.

Pension providers and consultancies with proprietary technology are certainly investing time and resource to deliver middleware which will interact with HR and payroll systems.

But what of the payroll providers themselves? Professional Pensions reported on January 12 about the concerns being raised as to the role these providers intend to play.

While it is natural to assume that automatic enrolment lends itself to a software upgrade, this is only the case if we look at the actual enrolment protocol in isolation from the rest of the employer duties. Much of the required administration and communication work is actually pre-payroll; employees need to be categorised and informed accordingly based on their eligibility. Other parts, such as the administration of the opt-out protocol and the handling of the subsequent contribution refund straddle the payment process.

Furthermore, the assumption that employers will run a single automatic enrolment scheme seems more tenuous; it is clear that providers in the bundled DC space will not necessarily extend current scheme terms to less commercially-attractive new entrants. The use of different schemes for different categories of employees certainly seems more likely, particularly in certain sectors.

Throw all these complexities into the mix and it is clear that triggering the correct payment via payroll is only part of the solution - the complete answer will lie in broad-based technology propositions supported by a deep understanding of the nuances of the legislation and an ability to seamlessly interact with all of an employer's IT infrastructure. It is a brave new world we are entering and good effective technology will certainly have a crucial role to play.

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