Essex reduces AE costs with transitional delay

The transitional delay means eligible employees – those that worked for the council prior to the staging date of January 1 2013 – will now be enrolled in 2017, but they are able to opt in from the staging date. Workers that join or become eligible after the staging date will be auto-enrolled immediately.

Employers have made use of this tool to defer or spread the cost of enrolling a large group of employees into a defined benefit scheme, especially in the public sector where this accrual is less likely to be closed before 2017.

The delay was also used as Essex was one of the first local authorities to implement workplace pension reform. “It was a massive project, and it was early on in understanding [auto-enrolment]. We thought if we could get to grips with it before the bulk joined it might be helpful,” said HR manager Nicki Harris.

“Secondly, there was a cost factor. A good proportion of people weren’t members and if we put everyone in, there would be a cost,” she added.
David Robbins, senior consultant at Towers Watson, said transitional delays were commonly used by open DB schemes due to the higher contribution costs associated. “Primarily, this would be used to delay the cost,” he said.

It was more popular in the public sector as employees have to have a continuous right to join the scheme. So even if the DB scheme is closed before the end of the delay period, the employer has to backdate members’ entitlements, Robbins said.

How Essex managed staging

The scheme started by setting up a project group that consisted of employer pension officers, HR representatives, payroll, pension administrators and communications. The group was brought together 10 months before the staging date of January 1 2013.

“If we had tried to do it separately it wouldn’t have gelled together,” said Harris. “It made the whole thing run more smoothly by getting everyone involved, and I don’t think it would have been as successful if we hadn’t.”

The scheme also decided to bring forward its staging date so it would not have to manage the bulk of opt-outs during the financial year end.

“Ironically, because of the way the process works and you are auto-enrolling people the month after, we are effectively doing that anyway,” said Harris.

“We had to make a lot of assumptions early on about what would happen and some of those didn’t materialise. It didn’t have a negative impact; we could have not done certain things but we just didn’t know at the time.”

The authority decided early on that it would develop a single approach for all schools. It asked employers including foundation and voluntary-aided schools to bring their staging dates in line with that of the council itself, to reduce its payroll burden.

The majority of schools use the council’s payroll system, and different dates would have been more difficult to process. “We only had 20 schools that didn’t use the payroll system. Had it been more we may have taken a different approach,” Harris said.

Communicating auto-enrolment

The council started communicating with employees at the beginning of the auto-enrolment process, with a dedicated communications manager who was a member of the project group.

Communication with employees of the council was different from those working in schools, because they did not have a direct relationship with them. “Our comms with schools was much more about targeting admin staff and headteachers to communicate with staff on our behalf. We did a lot of workshops and had information for them so they could do the communication with their staff,” said Harris.