Number of employees enrolled in workplace pension schemes could increase up to 82%, but many employers remain blasé about the opportunities and threats
The vast majority of employers (88%) are fully aware of their requirements to auto-enrol staff into a pension scheme, but only half (51%) of those have looked beyond legal compliance and taken steps to ensure their pension arrangements meet the needs of the business and employees. That's according to the latest research from the Chartered Institute of Personnel and Development (CIPD), based on a survey of more than 1,000 employers across all sectors of the economy.
The CIPD also surveyed more than 2,000 employees and found that 62% of those not currently saving through a workplace pension plan to stay opted in when they are auto-enrolled. As a consequence, the CIPD predicts that if the rest of the UK workforce behaves in a similar fashion to those surveyed the overall percentage of those in a workplace pension could increase from 52% to 82%.
However, the report Labour Market Outlook: Focus on pension auto-enrolment, reveals that employers are divided when it comes to the predicted impact of auto-enrolment on their organisations: 49% predict it will have no impact, with the remainder predicting it may impact wage growth and other elements of the reward mix. Worryingly, only 26% of organisations have already started to collect data to measure and evaluate the impact, while 20% have no intention of doing so.
Commenting on these figures, Charles Cotton, CIPD rewards adviser, said: "It looks likely that automatic pension enrolment will significantly boost the numbers of employees saving for their retirement. Given that the cost of pensions is a major business outlay for most employers, it is somewhat disappointing that so few have started collecting data to assess the impact that these reforms may have. Some organisations may feel forced to offset some of the additional costs by reducing wage growth or cutting other benefits, but it is important that employers examine how they can turn these costs into an investment that will bring a return to the organisation in the form of higher employee engagement, as well as aligning their pension scheme with the organisation's business strategy, brand and culture. Our survey reveals that while much has already been done in this regard employers still need to do more.
"It is also concerning that so many respondents do not know what types of strategic or operational reviews are being carried out in light of automatic enrolment and too many are focusing just on their legal requirements. Getting it wrong doesn't just mean getting into trouble with the Pensions Regulator. Large employers should treat the exercise as an organisational change project and set up cross-functional teams to implement the changes. Otherwise the danger is that HR teams assume that payroll, pensions or finance teams are taking the lead with auto-enrolment while these departments think that HR is. Regardless of who takes the lead, it's important for each of these departments to support the implementation team to ensure that the outcome meets the needs of the organisation and employees.
"The challenge of successfully implementing automatic pension enrolment is no less daunting for small and micro employers, who often do not have HR professionals to whom they can turn. That it is why it is vital to the success of these reforms that, before smaller companies reach their staging date, medium and large employers share their experiences of automatic enrolment and suggest ideas and solutions for this vital part of the UK economy."
To provide employers with information and guidance on pensions and auto-enrolment, the CIPD has developed a dedicated resource area on its website, in partnership with KMPG. http://www.cipd.co.uk/hr-resources/kpmg/
Andy Seed, Pensions Director at KPMG in the UK, said: "Auto-enrolment is 10 per cent a pensions problem and 90 per cent a systems, process, IT, communications, HR policy and governance issue. The intent and spirit of the legislation is admirable but there are huge challenges for businesses in getting it right. It's a business imperative that these non-pensions aspects of auto-enrolment are thought about earlier in the process than we are generally seeing in our experience so far working with organisations that have had the earliest staging dates."
Other findings from the report include:
More than two-thirds of employers have already identified the date when they will be required to start automatically enrolling employees.
Where organisations predict that auto-enrolment will impact their businesses, this is expected to be in the form of lower wage growth (21%), a reduction in other elements of pay such as bonus or overtime (18%), cuts to non-pension benefits (15%) and no wage growth (13%).
Looking at the possible impact of automatic enrolment on their existing pension arrangement, half of those questioned (50%) predict that their current offering will not change in value after the introduction of auto-enrolment. Just under one in ten (9%) predict that they will cut their pension offering, while just over a fifth (22%) of organisations report that their pension offering will increase as a result of auto-enrolment.
59% of employers have conducted reviews to ensure that their pension arrangements support the legal requirements of auto-enrolment, while just over half of employers have checked their pension plans to ensure that they support the needs of employees (51%) as well as the business strategy (51%), and just under half of employers have been reviewing their pension arrangements to see that they support the reward strategy (47%) and the organisational culture (47%).
At an operational level, 44% of respondents have been reviewing their HR, payroll and pension administration systems while 43% have been examining the way that they communicate to employees about pensions.
23% of respondents do not know whether their organisation has costed the impact of auto-enrolment.
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