The banking group’s defined contribution scheme is taking advantage of legislative flexibility to delay by two months auto-enrolling employees
Under the auto-enrolment legislation, schemes are able to bring forward or defer their first auto-enrolment assessment by up to three months.
Lloyds' auto-enrolment priority groups
Schemes approaching auto-enrolment should pay special attention to how it affects the following groups, the Lloyds pension team has found:
Employees reaching the age of 22;
Employees with fluctuating earnings taking them over the threshold;
Employees with fixed protection; and
Those who take retirement benefits and continue working.
"You will spend most of your time managing these and building processes for them," said Baxter.
While some schemes such as Oracle have brought auto-enrolment forward to reduce the risk of things going wrong, Lloyds is postponing from November 1 2012 to January 1 2013.
Robert Baxter, head of pensions strategy at Lloyds, said one of the scheme's strategies was "warming employees up" ahead of the change.
He added: "Being one of the first employers to be subject to auto-enrolment, there is uncertainty as to how widely known it will be, so we need to make sure we are able to mitigate queries when we start to enrol people."
The scheme's delay is part of a drive to improve communication with members by aligning auto-enrolment with the annual cycle of their flexible benefits. It will also give members a forewarning that they will be auto-enrolled.
Employers that are more effective in communicating auto-enrolment messages to staff have a better chance of reducing any backlash when the requirements kick in.
Lloyds' communications strategy
The scheme has had to change its opt-out processes to meet legislative requirements and reduce the risk of employee dissatisfaction.
Currently employees not wishing to join the Your Tomorrow scheme – which has auto-enrolled employees since 2010 – can elect to opt out before being enrolled into the scheme so deductions are not made.
Baxter said this will have to change under auto-enrolment, when employees will only be able to opt out after joining the plan.
“Otherwise we would have the situation where new employees tell us they don't want to join Your Tomorrow but we have to put them in anyway following their first assessment," he added. "This would not be a good start to their career with us.”
Lloyds provides new employees with a short scheme guide, familiarising them with the scheme and encouraging the use of online modelling tools.
The tools combine contributions, other savings and pension benefits in order to help employees calculate and plan their retirement income.
Line managers are usually the first stop for any employee with a query so we need to make sure they have an overview of auto-enrolment
Robert Baxter, Lloyds
The scheme then produces annual reminders that contributions can be changed to suit members’ needs.
"Our auto-enrolment strategy is about using these existing communications to get the mandatory messages across," said Baxter
Due to uncertainty around how many employees will be familiar with auto-enrolment, the scheme is putting a large amount of effort into reducing concerns by educating its human resources and support staff.
Baxter added: "Line managers are usually the first stop for any employee with a query so we need to make sure they, HR and helplines have an overview of auto-enrolment, what it means, and why saving early makes a big difference in pensions terms."
Members who have chosen to opt out will still be able to rejoin, but the scheme will communicate with them through monthly and triennial reassessments.
The plan is also paying special attention to those members with fixed protection on their pensions tax relief, to make sure they know the consequence of not opting out of workplace saving on their tax charge.
How to manage opt-out risk
Avoiding contraventions of the law will be complex as there are strict legal requirements in relation to opting out.
The reality is you need a minimum of 12 months to get through this process
Lee Hollingworth, Hymans Robertson
Opt-out forms will have to be issued by the scheme, not the employer, and the information given about the right to opt out will be carefully regulated.
Under the legislation, employers are required to give employees information about their right to opt out alongside initial information about the scheme.
Cathryn Everest, an associate at DLA Piper, said this was a potential communications flash point for schemes.
She added: "If that strayed into trying to induce or encourage a person to opt out, it is a problem under the legislation because it’s prohibited."
Everest said schemes looking to pre-empt such problems should consider:
Whether their existing scheme offers the right to opt out;
If not, they should prioritise creating processes for opt-outs; or
If so, consider their processes and how they align with the requirements.
Lee Hollingworth, head of DC consulting at Hymans Robertson, said using an auto-enrolment brand, like Your Tomorrow, was the best way to overcome inevitable communication challenges.
He said: "Try to establish an identity for the auto-enrolment communication that is separate from the company identity."
Establishing a working timeline is also key to streamlining a scheme with legislation.
Hollingworth said: "The reality is you need a minimum of 12 months to get through this process. It does vary, according to the complexity of the organisation and how much change you’ll have to instigate."
