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Autoenrolment is a success - the data proves it! But data also reveals a few other things...

Autoenrolment is a success. A very small percentage of employers are initially failing to comply with the law. Approximately 6.5% to be exact. Not bad, given that well over 1m employers are now running a pension scheme.

But did you know that approximately 65% of all SMEs perform ongoing AE duties themselves in-house and that 80% of all SMEs do not suffer any costs for meeting their ongoing duties? (Source : “Employer automatic enrolment ongoing duties survey 2018 (Published March 2018).”

This feels like a minor miracle. How did it occur? Several reasons:

1. It’s the law. 93.5% of business owners respect the law (the remaining 6.5% get served a Compliance Notice, then 50% of those get served a Fixed Penalty Notice, and then 25% of those 50% of the 6.5% get served an Escalating Penalty Notice... and then they respect the law).
2. The DWP and TPR and NEST are doing a good job. NEST have dominated the provision of pensions to the SME market. They had the resources and the remit to get the job done, and never turned an employer away. A majority market share rarely seems like a good outcome but in this case it very much looks like HM Gov thinks it’s better to have all eggs saving into in one NEST than not saving at all. (Apologies for the pun).
3. Technology (in the form of payroll software upgrades, pension provider portals and integration-APIs) has helped the smaller employers.

Technology is the telling factor. It’s the unsung bit, generally speaking. There’s no way automatic enrolment could have been successful thus far without internet technology: no direct access to pension provider portals for example. There’s no way AE would work without payroll software and benefits-middleware streamlining the assessment calculations and tax arrangements. Increasingly, technology is being used to make the fiddly bits of AE even easier: 100,000 employers are actively benefiting from NEST integration; payroll software is able to automate manual data loading via direct integrations like Sage’s own Pension Data Exchange, or via intermediaries such as pensionsync.

So AE is a success.  Done and dusted, right?

Probably. But there are a few aspects of autoenrolment which need some ongoing attention.

Firstly, no one knows whether the hundreds of thousands of SMEs who are administering their own pension are remaining compliant.

Initially, to avoid being sent a Compliance Notice, an SME needs to submit a Declaration of Compliance within 5 months of their staging date. That’s all. There’s precious little ongoing monitoring of SMEs thereafter. Pension providers should be monitoring whether or not an SME submits the minimum contributions required by law, and then reporting to The Pensions Regulator any SME who fails to maintain contributions. But autoenrolment compliance goes deeper than just submitting contributions. The only real way to determine if an SME is failing to remaining compliant is if The Pensions Regulator audits them in a spot check, or if an employee blows the whistle.
Thinking about the sheer size of the SME autoenrolment market, it’s more likely to be the risk of employees blowing the whistle, than a spot-check by the regulator, which motivates employers to stay on top of their pension duties.

Autoenrolment is complex legislation and for many SMEs there is a lot of new terms and new rules to learn. Eg Who is assessed, and by what criteria? Are staff communications being sent out? What needs to be done for cyclical re-enrolment? Are the contributions being calculated accurately, especially with regard to the pay arrangements? 

Its entirely possible for an SME to think they are compliant when in fact they are not.
Technology is the only hope the majority of SMEs have of being able to actually maintain compliance. Good technology will support the SME through re-enrolment, creation of accurate letters, adjusting the assessment criteria as and when they are adjusted by HM Gov, and ensuring tax is calculated correctly.

The concern is, though, that autoenrolment technology is very new and in most cases is only doing “the essentials”. Rarely is it “artificially intelligent”. It does not automatically adjust itself to ensure the SME remains compliant at all times, or proactively warn SMEs if it thinks they have made an pensions administration mistake. The investment of software engineering time required to enhance payroll software to that level of sophistication is significant. The challenge the payroll industry faces is that SMEs don’t like paying for technology when a free version is available. The risk for employers is that a free payroll tool may not have all the same features as a paid-for tool.

Secondly, it looks as though the rate of Compliance Notices (CNs) being issued by The Pensions Regulator is increasing. 

The ratio we've examined is between Compliance Notices and employers who staged 5 months earlier. (What’s a Compliance Notice? A Compliance Notice under section 35 of the Pensions Act 2008 is a Letter sent by the regulator to remedy a contravention of one or more automatic enrolment employer duty provisions).

Our analysis of TPRs data reveals that between October 2016 and June 2017 the ratio of Compliance Notices issued by The Pensions Regulator to the number of employers staging 5 months earlier was consistently 7.5%. Put another way, for every 1,000 employers staging on 1st January 2017, 75 Compliance Notices would be issued 5 months later (when those employer’s failed to declare their compliance with TPR).

But since June 2017 the ratio of Compliance Notices to employers has started to creep upwards.

• Quarter ending September 2017, 13,752 CNs issued within a pool of 164k employers. A rate of 8.4%
• Quarter ending December 2017, 17,949 CNs issued within a pool of 182k employers. A rate of 9.8%

There’s a clear upwards trend over a 6 month period. Given the fact that the majority of small employers are DIY-ing, perhaps we should not be so surprised that the Compliance Notices are on the rise.

The future of pensions technology

Its clear that technology, in particular free technology, is key for SMEs with regard to autoenrolment. However, the next technology innovations are not likely to be in the space between payroll software and pension providers, but instead between pension providers and their members. Autoenrolment could very well be the event which changes the employee engagement game. 

Pension member engagement rates are historically bad. Providers are compelled to provider annual statements but nothing else. Would there be so many lost pots if providers were better at member engagement? Would members reconsider leaving a scheme if they were appropriately engaged, and fully aware about the long term ramifications of not saving to a pension? 

DWP’s pension dashboard initiative is firmly aimed at the soon-to-be retiring members who don’t know what their pension will be. But automatic enrolment has hoovered up millions of younger workers. Digital-native workers.

If the digital natives all know where their pots are, then would they be bothered to use a dashboard to find them? Would digital natives seriously consider moving their pension pot to an alternative provider, with a slightly lower annual management charge, if the alternative provider had no mobile app or online wealth management tools?

Mobile apps, tablets, interactive TVs, smart speakers, talking avatars, social media. These are the channels through which members will engage with the companies they have trusted with their future wealth. Smart Pension fully understand this and have already started to go where no pension provider has been before.

Alexa, “what will I live on when I retire?” 

-- Epilogue --

At pensionsync we love our data. And we love building software. So we could not help but plug the TPR’s data into a little app we created called “Nostradamus” after the great soothsayer himself. Based on the trends Nostradamus has identified in the TPR’s historical data we predict that during period between January 2018 - March 2018, the Pensions Regulator will have issued:

• 24,611 Compliance Notices (we predict the rate at which Compliance Notices are issued will have risen to over 10% between January and March 2018).
• 9,704 Fixed Penalty Notices
• 1,932 Escalating Penalty Notices.

We’ll know how good Nostradamus is when TPR issues their next Enforcement Bulletin. The results will be published as a comment to this blog. If you “like” this blog then you will get an automated update when that happens.

There's an anomaly in the regulator’s data

Whilst we were geeking out on TPR’s data, we noticed something odd. In the 3 months between July 2016 and September 2016, The Pensions Regulator issued 15,073 Compliance Notices.

What’s so surprising about that?

Well, the surprising thing is that in the 3 month period before (e.g. April 2016 - June 2016) TPR issued only 3,392 Compliance Notices. And in the 3 months after (e.g. October 2016 - December 2016) TPR issued only 6,296. In fact, the total number of Compliance Notices issued by the TPR up until July 2016 was 11,151. A spike of 15,073 means that something happened. There was an event which caused the spike. But we cannot figure out what it was!

Can anyone shed any light on this? Answers by comment on this blog please. (Clue - it’s not because of the increase in employers who had to stage in the preceding months. Or at least the published data does not support that theory).

Sign-up to our next pensionsync masterclass for STAR users

Click here to Register for the next pensionsync and Star webinars

About
Following the success of our introductory webinars over the last 12 months, we have launched a brand new (but still FREE) pensionsync masterclass webinar for users of STAR Payroll Professional. 

Suitable for beginners and experienced users, the masterclass focuses on the "how" rather than the "why" - we all know that auto enrolment is a huge challenge for payroll; this webinar focuses on the nitty-gritty of how STAR and pensionsync help you conquer that challenge by: - 

• Seamlessly connecting your payroll to Aviva, NEST, NOW: Pensions, Smart Pension and The Peoples Pension
• Sending enrolment and contribution information as a single electronic feed each pay period - Downloading opt outs directly in to payroll
• Getting maximum efficiency from your payroll software with the benefit of feedback we've collated from over 100 STAR bureaus 

And all without a CSV file in sight. What are you waiting for?

4 GDPR reasons for automating Automatic Enrolment

by Chris Deeson - pensionsync's Chief Marketing Officer

HEALTH WARNING: This is not a “learn how to comply with GDPR” blog. 

This is a “how can you mitigate your personal data risks when sending and retrieving Automatic Enrolment data” blog.

Employers, accountants, payroll bureaus and bookkeepers need to do everything they can to minimise their GDRP-related risks.  Automatic Enrolment requires frequent movement of data to and from pension providers and payroll software.

The majority of AE data is moved via CSVs, which need to be downloaded, stored and uploaded. CSVs cannot be password protected.

And all too frequently - when something goes wrong - they are e-mailed, unencrypted for someone to “look at and fix”.

So, here are 4 ways that automated AE processing significantly reduces risks for everyone in the chain.

1.    GDPR extends the requirements so that not only Data Controllers, but also Data Processors have to comply.  If everyone along the payroll processing line is producing and saving CSVs, then Data Controllers need to keep tabs on multiple CSVs manged in multiple organisations. 

That’s a significant amount of risk for a Data Controller to be on top of (not mentioning potential fines).

How does automated AE processing help?  
pensionsync users don’t use CSVs to send data, nor do they download them when retrieving error or opt out reports from pension providers. No CSVs, means data is only held within the payroll software and not scattered around multiple storage facilities.

2.    All businesses now have to produce DPIAs (Data Protection Impact Assessments) where privacy breach risks are high. The risk of sending, receiving or saving Automatic Enrolment data using CSVs is inherently high risk, so businesses reliant on CSVs will have to produce those DPIAs.  CSVs are inherently risky because:

1. data is saved outside of payroll software
2. any time the CSV file is sent somewhere it is unencrypted
3. e-mailing that CSV file immediately saves it in email accounts (where it could be hacked) and across multiple devices.

How does automated AE processing help? 
Proper automation eliminates CSV usage. But pensionsync goes further than other API solutions, as pensionsync undergoes an annual voluntary independent audit to ensure that we maintain the strongest security mechanisms as well as data privacy standards. This provides confidence to our Data Controllers further up the chain. 

3.    GDPR requires Privacy by Design. 
This includes deleting information – which means every CSV with personal data must be included in a deletion plan.  Where those CSVs are held in multiple places (e.g. email, hard-drives, different organisations etc) that becomes a complex series of plans to co-ordinate.

How does automated AE processing help? 
Personal data is only held on individuals in limited circumstances on pensionsync, so usually there is nothing to forget – but if there is then it is one place and can easily be removed.

Data flowing through pensionsync is encrypted and no human eyes see the data on the way through. To view data – e.g. for a support query – we need a full audit trail of permissions before we can even view the data.

And as data flows through the system, we minimise data stored by deleting submission data within specified timescales. Deletions happen 48 hours after a successful submission for our White Label clients and after 2 months for our Direct Label ones.

4.    GDPR strengthens Individual’s Rights across a number of areas:

1. GDPR gives someone the right to be forgotten (including retention and disposal). It is unlikely that someone will want to be forgotten while employed, but what about once they’ve left employment? How are you going to remove them from multiple CSVs if they ask to be forgotten? Everything gets messy as soon as you hold data outside of payroll software.
2. Right of Access. Under GDPR, individuals can ask for access to what information is held on them. It will be a huge undertaking to trawl through months’/years’ worth of CSVs to see what data is held about each person requesting this information.
3. Quality and Rectification – are all those CSVs accurate and up to date if a piece of data changes? 

How does automated AE processing help? 
Again, rare that pensionsync will have data for an individual – but if an individual wants deletion of that data or wants to know what data is held, then it is held in a concise number of places. 

This is why many accountants are increasing their use of pensionsync within their payroll software ahead of the GDPR Compliance deadlines.

And, of course, they are saving the time and money they spend on Automatic Enrolment at the same time.

Group life insurance: "I didn't realise it was so cheap"

The universal reaction from small employers when benefits.market displays an indicative price for buying employee life insurance for the entire company is: “I didn’t realise it was so cheap”.

One of the barriers to small employers buying any type of group risk product is a preconception that it will be expensive. Another barrier is that they believe they have to appoint a financial adviser.

Neither are true.

And yet there is a simple and positive reason why proprietors of small businesses should explore buying group life insurance before they consider taking out an individual policy on their life:

Cost.

An individual policy often costs more and provides an insurance policy with less value.

Group policies often require no medical questionnaires and insure more people for an overall lower cost.

For many of the 965,515 small business owners in the UK who employ between 2 and 9 people (source 2017 ONS business population estimates) group life insurance will simply be cheaper than insuring just their own life.

Here’s an example: a 47 year old business owner seeks a £180k benefit from life insurance (3 x her £60k salary). If she bought her life insurance from an internet insurance comparison site it would effectively cost her £879.20 per year.   But if she bought the same level of cover (3x salary) for herself and all 7 of her employees then it would cost the business £262.09. 

That’s a staggering difference of £617.11 per year.

At first glance, this is counter-intuitive: the price of insuring 8 people is significantly less than the price of insuring 1 person (who is also a member of the group of 8). 

But, of course, it’s all about risk. 

Group insurances spread the risk over the group, making the chances of an insurance pay out more predictable and therefore easier to cost for (from an insurance company perspective).

In this example I gave my fictitious business owner a passion for scuba driving (in the UK!) and Gliding. These are 2 relatively high risk hobbies. But this is not an issue for group life insurance where there is no requirement for medical underwriting. On a individual policy, these slightly riskier activities would certainly push her individual premium up.

Historically, group risk insurance is sold to employers as an employee benefit e.g.: “give your staff more financial protection”; “help reduce their money worries”, or “improve your employee retention and attractiveness etc.”

These statements are as true for small employers as they are for larger employers (who are the traditional purchases of group risk). But what works as a sales strategy on the HR departments of large employers may not be as successful at influencing small employers.

When I think about how to increase sales of group risk to small employers I don’t just think about how to advocate the benefits of group insurance for their employees. I also think about how to tell business owners who currently buy their own individual life insurance to take a look at group life insurance… and then review what value for money really means.

About the author

The author is the founder of pensionsync and benefits.market. benefits.market is an online comparison site for group life, sickness, and health insurances. Small employers can open a benefits.market account directly at www.benefits.market or through their pensionsync account.

pensionsync is a cloud SaaS data exchange which automates the delivery of employer’s data to autoenrolment pension providers in the United Kingdom. 

The data behind the example

3 predictions on the impact of the Payroll-2-Pension PAPDIS data standard

Yesterday (2nd July 2014) a significant press release was issued by ‘Pensions BIB’ announcing that they were creating a free data standard (named the PAPDIS standard) to help simplify the transfer of data between Payroll systems and Pension systems. Its significant because if this data standard is adopted it will be used to transfer every UK employees personal information. Including yours.

I had the privilege of being invited as a guest to the last ‘Pensions BIB’ meeting in London, also attended by the Pensions Regulator, The Department for Work and Pensions, The Chartered Institute of Payroll Professionals, the British Computer Society, the Business Application Software Developers group, and other influential representatives of the Payroll and Pensions industry. That gave me an opportunity to thank that group for their efforts so far to create a data standard for what will become an essential business process for every UK company. Now that the press release has been issued I can use this blog to thank them publicly.

But I’d also like to take this opportunity to make three predictions about what the impact of a data standard will do to the auto-enrolment market and its constituents.

1. My first prediction is that it will firmly cement Payroll as being the IT system in which auto-enrolment assessment and pension calculations are done. At the moment there are several places where assessment can be done: in Payroll, in independent Middleware, or in the Pension Provider’s systems. The reason for this is that its not always been possible to assess staff in Payroll (because Payroll software may or may not have that capability). But PAPDIS assumes that Payroll will do assessment. That’s good news because its the most efficient place to to assessment in terms of business process. If assessment is done anywhere else besides Payroll then Payroll needs to stop and wait for a data feed back from the assessment system containing individual employee Pension deductions. That’s horribly inefficient and just would not work for many SMEs in this country.
2. My second prediction is that not every Pension Provider will adopt PAPDIS (even if every Payroll system does). That will create a schism in the Pensions world: those Providers that can take a PAPDIS file directly from Payroll and those which cannot. The reason I think some Pensions schemes will not adopt PAPDIS is because they cannot afford (in terms of time or money) to change the way they accept Pension data from 3rd parties.
3. My third prediction is based on the first two being correct. I predict the role of independent AE middleware will become clearer and better defined as a result of PAPDIS. AE Middleware will be able to take a PAPDIS feed and then do the things that Payroll software is not willing to do. For example, issue employee communications, provide a web-login for employees to monitor their pension payments & other benefits, and perhaps gather in more Employee/Employer data and be able to output a Pensions data file to Pension Providers which are not PAPDIS compliant.

The bottom line is that the creation of a data standard that will be readily adopted by all Payroll software providers is good news for everyone: Payroll practitioners; Pension companies; and Flexible Benefit Middleware companies. It immediately simplifies the ongoing auto-enrolment business process but it also clarifies “who should do what” for auto-enrolment. Something that until now has not always been clear.

So what does PAPDIS it mean for my company: SystemSync?

In the short term: we’re still helping our customers work in a standard-less environment in which every payroll export format differs from the next. We will continue to do this until PAPDIS is adopted by the entire Payroll software community.

In the medium term there’s a job for SystemSync to help with the rapid adoption of PAPDIS. SystemSync can take a PAPDIS file and convert it to a Pensions contribution or AE Middleware input file format. That means SystemSync can help cut the cost and the time for anyone to wishing to work with the PAPDIS format. And that helps with the adoption of this nascent standard.

In the long term the presence of a standard will help SystemSync build seamless end-to-end data integrations because it will mean we don’t need to waste time working out what data should be available, what that data means and how to map that data. But the other thing we desperately need (to build seamless data integrations) are APIs. APIs exposed from Payroll and APIs exposed by Pension companies or Middleware. Once those APIs are in place integration-platforms-as-a-service like SystemSync can remove the dreaded CSV file from the data transfer process and make everything faster and more secure

If your SaaS product does not have an API then its not valuable

Myself and others at SystemSync Solutions Ltd have spent a lot of time recently looking at Cloud SaaS Payroll systems in the UK. And during that time we’ve also migrated our traditional accounting package (which use to sit in a server in our office) into the cloud. Our findings and experiences from these activities has lead us to understand that if a SaaS product does not have an API then it is no better than a traditional desktop software product.

Here’s why:

Firstly, there’s no financial advantage to using a cloud SaaS tool. Our old desktop accounting package used to cost me a monthly fee to license. The SaaS version is approximately the same monthly fee. 

Conclusion: in this case SaaS gives no significant financial advantage to the customer

Secondly, there’s only a small productivity advantage to using a cloud SaaS tool. True that SaaS can be accessed anywhere (such as from home) but my in-office desktop accounting package was also accessible from home via VPN. It’s also true that cloud SaaS does not require me to install new software versions. But to be honest the job of installing new software versions on desktop software is trivial and reduced to a few clicks. Most desktop software packages do a great job of updating themselves in the background. But it has to be said that one clear advantage from using a SaaS accounting package is that my accountant can access my account on a regular basis to keep my books in order. That’s good for them, but irrelevant for me. 

Conclusion: in this case SaaS gives some, but not significant, productivity advantages to the customer.

Thirdly, when it comes to security there’s no real advantage to using a cloud SaaS tool. Personally I think my companies financial software is now marginally safer then when it was stored in my office. When I moved my accounting package into the cloud I made a choice to trust my company accounts to a very large established business which I believed could be relied on. And at the same time I removed from my own business any responsibility for local security/back-up/access/password management to the server containing my accounts package. But the advantage is small. Security of my desktop accounting software was already pretty good: I know who has access to the room its in; I know who has access to the machine it sits on; I know it cannot be accessed without 2 sets of usernames/passwords which only I know. Plus in the back of my mind I know that SaaS companies store all their customers data in one place meaning if a hacker did get through then they would be able to steal thousands if not millions of companies financial data in one go. 

Conclusion: there’s no real security advantage to using Cloud SaaS.

So if there’s no clear advantage on price, security or productivity for customers of cloud SaaS then what’s left? The answer is data integration. Enabled by SaaS platform APIs.

Using Cloud SaaS tools which have APIs means I can “add on” additional functionality to my SaaS accounting platform. I can link it to other SaaS products I use like time sheets, e-invoicing platforms, e-commerce markets and so on. This helps me reduce my manual data entry tasks. And that gives me real justifiable productivity gains and the possibility to scale my business without getting slowed down by admin.

And that leads me back to my opening sentence of this blog: if a SaaS product does not have an API then its not valuable to the customer because its not helping them move their data around their business. Instead its keeping their data siloed and isolated. Which is a situation that is no better than the old desktop software equivalent. The big incumbent software houses want to move you (their customer) into the cloud so they can stop supporting multiple desktop software versions. I understand why they’d want to do that. But if those same companies don’t also provide an API into the SaaS product then their customers data is just as “locked in” as it is in desktop software.

The UK Payroll market is dominated by legacy desktop payroll software products. But there is a new breed of emerging Cloud Payroll products. But to date I have only encountered one which has an open API: PaySuite. That’s amazing. Its amazing because almost every other software market sector is dominated by SaaS products with APIs which are chaining together to provide seamless data integrations. That seamless exchange of data is eradicating the mundane office tasks meaning that businesses which are adopting Cloud SaaS tools are overnight becoming more productive and efficient (than rival businesses which are not). That means that SaaS with APIs gives competitive advantage to customers who use them. SaaS without APIs does not give any advantage.

Right now my policy on buying cloud SaaS products is “if it doesn’t have an API then I’m not interested”.