Is Auto Enrolment a missed opportunity?
Having been asked to speak at a pension seminar with JLT & FootAnstey on the subject of auto enrolment (AE), I questioned what I could add? How could I shake it up? How could I provide a different perspective on AE? Well it turned out the answer was easy, but purely because the timing was perfect. I happened to be working with several clients who had been unsuccessfully trying to ignore the impending staging dates. With some support from us, they were finally taking the bull by the horns and tackling the issue head on. So what can others learn from what I am doing for my clients? That was my starting point...
I was keen for my clients to look at this as an opportunity; turning a forced change into something positive. I think AE is a missed opportunity if we don’t look at it through a Total Reward lens. By Total Reward, I don’t just mean Pensions Salary Sacrifice and Total Reward Statements; I mean everything - reviewing, realigning and recalibrating reward. I also wanted them to address employee engagement. How was AE going to affect existing pension participants? And those that will be auto enrolled? For my clients, it’s more than managing the implementation and administration of AE; it’s is an opportunity that can be utilised. Here is what I shared at the seminar:
Common questions my clients ask:
- Where is the money coming from to fund AE?
- How much will participant levels increase?
- What long term financial impact will this have?
- How will AE employees afford it?
- Will it impact existing pension members’ wider reward?
- Will we freeze their pay because it’s going to cost us money to fund AE?
With these questions in mind, let’s look at the options available to you:
1. Sweating the Assets – self funding opportunities
Running AE and the wider pension scheme via salary sacrifice goes a long way to help fund additional pension contributions. Extending into a flexible benefits scheme can increase tax & National Insurance savings for employees and employers.
Working through some options with a sporting company, the CEO was looking at innovative ways of making the investment work for him. We discussed reducing or maintaining base pay, increasing the variable element and having a stronger link to performance. We looked at moving towards increases that differentiate performance/contribution to make salary spend more effective and maximise the value they get from their employees – we invest in you, this is what we expect in return.
2. Robbing Peter to pay Paul – consolidation & pay holidays
A client said to me… “Our only option I fear is to freeze pay and use that money to invest in the first year of AE.” Whilst we weren’t opposed to this option, we did challenge them on it. OK, if that’s your only option let’s think about the impact it will have on your employees who are already in the pension scheme:
- Could an employee challenge why they have to give up a potential pay increase to fund pension for employees who didn’t choose to join the company pension scheme originally?
- Could the AE employees ask why current pension scheme employees benefited from a company pension scheme and annual pay reviews before and because of AE, we have one or the other?
If this is the only option it needs careful consideration and a change management programme to anticipate and reduce the impact on employee morale.
3. MoneySupermarket - review existing reward spend
A manufacturing company took a total reward approach; starting at the reward strategy and ending up reviewing their whole reward spend. We looked at areas that were adding value and areas of overspend that could be made more efficient. It wasn’t about cutting benefits, but more about efficiency - getting more bang for their buck. They re-brokered insurance & healthcare and went full flex to increase the value of their benefits package, providing choice to their employees.
4. Raiding the piggybank - request new funding
Bite the bullet and deal with the immediate costs. Look to build a business case and understand the potential participant increase and benefits that AE will bring to your business. Will it improve attrition? Does it fit with your ethos of ensuring your employees are supporting their financial future? For our clients we have helped to cost out different scenarios to ensure they are selecting options that are right for them.
I hope this gives you inspiration. If you do nothing else, make sure you are aware of the impact of AE on employees. Treat this as a change management process and develop a communication programme that can make this transition easier for all. There are lots of elements to consider and it can be complex to do on your own. You can ask your pensions provider for advice or get in touch with Innecto for help with Auto Enrolment.
