Andrew Short considers the technological challenges facing companies preparing for the introduction of auto-enrolment.
Auto-enrolment, as the pensions minister Steve Webb has joked, will leave a legacy far more important than the other big event in 2012 the Olympics.
However, just like the London Olympics, the success of auto- enrolment hinges on the result of years of planning and preparation as thousands of employers will have to enrol many employees into pension schemes for the first time.
Of course, preparing for such a huge change costs money and there have been no shortages of predictions for what the cost of auto-enrolment will be.
Employers will be nervous at the thought of shelling out extra cash in the bleak economic times we live in. PP reported that Hymans Robertson put the cost for a company of 7,500 employees at £300,000 to set up systems (PP Online, 24 June).
These figures may be exaggerated employers that currently have sophisticated payroll systems or an off-the-shelf solution may find comfort in the fact they may not have to make any significant changes to the technology they use.
This is also the same for payroll providers who use in-house software (an outsourced service for many companies) and payroll software providers.
These software providers are only obliged to build software to deduct staff pension contributions from their pay.
As Chartered Institute of Payroll Professionals (CIPP) associate director of policy, research and strategic visibility Karen Thomson points out, “This is where the obligations end, but employers are looking for software providers to build in the triggers so they can enrol employees.”
In the interest of client retention, many providers are stretching these obligations to meet customer needs and building these alerts into systems.
The larger software providers appear to be ahead of the curve in understanding what tweaks they will have to perform on the progammes they use.
They will build these into existing systems, and it will not require massive overhauls. Payroll service provider ADP’s programme manager Jes Turner feels it is good news all round that no significant changes are required to existing systems, but warns there are some extra caveats to be taken into account.
“What we’re looking at is putting in alerts and eligibility checks so it helps clients make a decision and gives them as much information as possible at the time they need it for the enrolment and opt-out process,” says Turner.
Passing the baton
However, as much as payroll providers may understand their obligations, there are still grey areas.
There remain differences of opinion as to which departments are respon- sible for certain duties.
This is especially true when it comes to deciding which department is responsible for actually auto-enrolling employees.
ADP’s Turner feels it is becoming a difficulty and says these concerns have been echoed by IFAs and NEST.
“We don’t see there is a way for payroll to do the auto-enrolment of a person into a pension,” he says.
“Lots of companies are not taking ownership, and payroll look at it from this point of view: we don’t add new starter details, we get information from HR.
It should be them doing the enrolment into the pension scheme.”Turner adds that HR counter this view by saying it is not an HR function but a payroll function.
HR passes the information, but payroll determine the contributions. "This argument is falling between the cracks for some employers," warns Turner.
There are also two other concerns. The first is that pensions administration providers will not know who has opted out of the pension scheme and they will need this data from the relevant department.
This information is required to re-enrol employees after three years.
The other concern is that pension scheme providers will also want certain data so they can offer a better service to their customers.
Payroll will need to be involved in this process to provide this data and as yet many pension providers are unaware of this.
Karen Thomson points out it will be payroll that will provide this data:
"There is a real sticky wicket at the moment there are a number of providers who want to assist their customers better. The data will need to come from the payroll system to do this."
This exchange of data is a real concern for many in the industry.
Technology may not need a massive overhaul but data standards do.
There are two areas in particular that need to be investigated and improved: the first is file format and the second is to set guidelines for the date fields collected.
Thomson highlights the current compatibility problems faced by many systems: "There are 684 payroll software formats that I'm aware of.
In order for payroll and other departments to operate effectively, we need this data in a standard format."
Mercer principal Richard Hilton is also concerned that the differences in file formats may be a stumbling block for auto-enrolment.
He says: "2012 is looming and payroll software providers or pension providers do not have the resources to start working out multiple interface file formats at go live."
The data fields collected are also causing some problems.
NEST according to ADP's Turner is asking for fields that the payroll provider does not hold and are also not kept as standard in the industry.
He believes the industry will have to change if things are to improve: "If we provide a file to Scottish Widows, the name, national insurance number, contribution level, address line one, two and three and post code are set by us.NEST is asking to supply this data in a different format. They want house number, name, street name and then town."
This has widened calls in the industry for NEST to provide data guidelines.
This would appear to be a logical step as NEST has been working closely with the payroll industry.
NEST managing director of scheme develop- ment Helen Dean confirms this:
"We continue to work closely with payroll providers, for example, by hosting webinars for CIPP members to explain how NEST will work and through ongoing liaison with the sector to ensure NEST's processes work for them. As volunteer employers join the scheme this year, we are offering appropriate solutions for uploading worker details and effecting contributions."Such dialogue between NEST and payroll providers is a step in the right direction, but there needs to be an industry-wide dialogue between all parties involved.
More importantly, pension providers need to get around the table and talk about how auto-enrolment can be implemented as painlessly as possible from their perspective.
CIPP's Thomson points out that it would be helpful if they could agree on standard formats for data, "but because of commercial sensitivity this may never happen," she adds.
These calls for standard data formats are, in the eyes of many, ideal because they allow systems to connect seamlessly.
Systems can become automated and this in turn will lower costs because it does not require manual intervention.
The process will not grind to a halt because data needs to be re-entered or put into another format.
Pensions Administration Standards Association chairman Penny Green believes that if more companies can implement this straight through processing (STP) it will be cost- efficient and beneficial to auto-enrolment.
However, this will only be achieved by a standard in data and file formats.
"The more you can STP, the more you can streamline and web-enable, the more efficient and less costly auto-enrolment will be," says Green.
However, this connection of many different areas of business will only be achieved once there is a dialogue around data standards.
There is, however, at present a hold-up to the whole process.
The Department of Work and Pensions and The Pensions Regulator have not yet published guidelines on what is required for auto-enrolment and many software providers and consultants are waiting until these are published to make updates to systems and processes.
Barnett Waddingham partner Clive Grimley feels this is slowing the process. "We can't be too prescriptive because we're waiting for the 200 or so pages of detailed regulation," he says. "These are a bit overdue."
ADP's Turner also feels the DWP is halting the progress. Systems are being updated but much of what is being put in is guesswork.
He says: "The DWP has changed its mind because there are different user groups, different people raise different concerns. We think something is carved in stone and then it changes."
For every business, auto-enrolment is going to be a massive undertaking and tech- nology is going to have an important role to play.
The main objective for everyone in the pension industry should be to get an open dialogue started and soon as the clock is ticking.
If this is done sooner rather that later there will not be a mad dash to get people into pension schemes, but it will be carried out in a thoughtful and thorough manner.
As with many things in life, ‘slow and steady wins the race'.
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