Marks & Spencer is working on a payroll trigger for the 5,000 staff who will dip in and out of the auto-enrolment bracket. Ian Smith looks at how schemes are managing this regulation risk
M&S has around 5,000 employees who it estimates will dip in and out of the lower threshold for auto-enrolment each year.
Such employees, who are around the £7,500 lower income level, or turning 22 years of age, represent a crucial administrative risk for employers.
Determine whether you have employees who move in and out of the qualifing earnings for auto-enrolment;
Check your payroll and administrator provider are able to provide a service that will identify employees who become eligible;
Decide if you would like to simplify the administrative process by auto-enrolling a greater number of employees to avoid the administrative complexity.
The supermarket is currently working with its administrative and payroll providers to make sure it has a trigger system to bring members into the scheme if they become eligible further down the line.
Employers and schemes face a challenge to make sure no employees who become eligible for a pension are missed, following the introduction of auto-enrolment next October.
Not only would that deprive the employee of their right to build up savings for retirement, it would mean the employer was in breach of the legislation and had an inaccurate assumption of its pension liabilities.
Some employers are deciding to auto-enrol all employees, and to simplify contributions by having members pay out of their salary from ‘pound one’, rather than above the lower limit.
M&S's perspective
M&S has 70,000 UK employees, of whom 40,000 are not currently enrolled in a workplace scheme.
The company expects half of these to be eligible for auto-enrolment and around 5,000 to be in and around the lower earnings limit.
Julie Parker-Welch, pensions reward manager at M&S, said the scheme has had to pre-empt the detail of the legislation in order to have the administrative set up ready in time.
We’ve had to start our planning for this before everything has been finalised
She said: “While legislation is still being finalised we have had to review our scheme and allow ourselves sufficient time to ensure we have the systems and processes in place to successfully implement the new requirements.
“We are now working closely with our pensions and payroll providers to put in place solutions for an auto-enrolment trigger.”
In terms of the communication challenge for the employer, Parker-Welch said the scheme had a timetable in place for new joiners between now and the new scheme’s introduction in spring 2012.
This communication will be drafted in line with recommendations of the Department for Work and Pensions, and the employer hopes it will be supported by a government awareness campaign.
Parker-Welch added: “Retail is a pretty complex sector – with multiple sites and higher employee-turnover rates – so we’ve had to start our planning for this before everything has been finalised.”
The employer has passed up the option of avoiding complex trigger-based administration and auto-enrolling all employees.
The expensive, simpler answer
Darren Newman, a partner in the administration team at LCP, said the first challenge was engaging employers to understand what the auto-enrolment requirements are.
They might do more than the minimum if it keeps it simple
He said: “Then there is the whole administration piece, making sure you have got the right people in the plan, designing the scheme, taking into account those many complexities.”
Rather than setting up more complicated structures to make contributions payable on the statutory auto-enrolment band, some employers are ditching the lower limit to reduce their administrative risk.
He added: “They might do more than the minimum if it keeps it simple.”
Employers and schemes need to begin discussions imminently with their payroll providers, he added, to make sure their systems are able to cope with the added burden of calculating who should be contributing to the scheme.
Paul Gilbody, head of defined contribution consultant relations at BlackRock, said there are three challenges facing employers:
Auto-enrolling an employee every single time they break the £7,500 barrier, which is "increasingly easy" to do as the payroll industry develops;
Deciding whether to continue employer contributions from the first time the employee becomes eligible, even if the employee no longer qualifies in future, which more employers are considering;
Making sure your payroll system recognises age 22 as a trigger, as historically these systems have not been set up with a separate field for a set age.
BlackRock provides its own rules-based administration service, which can cater for employers that wish to be more or less generous, by deciding these parameters and feeding in their employee information.
"Data from HR or payroll can then be washed through it," he said. "The data is there, it is what you do with it."
