Auto Enrolment - Cost concerns - A Case Study

SuperlowpricesMart

Current Status and Aims

SuperlowpricesMart is a regional UK Supermarket employing around 1,250 employees.

Pension provision has to-date been treated as a relatively low priority. With many low paid and part-time staff, SuperlowpricesMart have continuing concerns that pensions are not high priority for them or their employees.

Some senior management are members of a long established Occupational Money Purchase scheme, but this is now closed to new entrants. The remainder of management and all employees have access to a Stakeholder pension scheme. Existing contribution rates are set by employee category. For many job grades, there is no employer contribution.

Review Process

SuperlowpricesMart provided full payroll and pension scheme data to Creative Benefits who carried out an audit of the existing pensions compared to the necessary new rules for auto enrolment compliance.

Creative drafted a Strategy Report for Joyce, HR Director and the Board member responsible for preparing a proposal for approval. This report highlighted all the areas of current non-compliance and set out a clear set of costings for analysis.

A painless couple of meetings later and with a little refinement to the first draft report, Joyce was ready to make her recommendations.

Recommendations

Update and enhance the existing Stakeholder pension plan to meet the standards needed for auto enrolment compliance. Use this plan as the qualifying pension plan for all eligible staff.

Set pensionable pay as ‘Band Earnings’ to account for all earnings up to the upper limit. This basis was selected to ensure that key personnel who can receive a high proportion of their total earnings in bonuses are suitably rewarded.

Employee minimum contributions have been set to be in line with the minimums required, with the option of paying more – which will then be matched by the employer.

Cost comparison

One of Superlowpricesmart’s major concerns was overall cost control, while still complying with the new legislation.

The National Employment Savings Trust (NEST) was originally thought to be the lowest cost option, but on further consideration, it became clear that this was unlikely to be the case. With the Creative Approach to employee guidance and advice, it was decided that the existing Stakeholder plan could be used, and that this would offer the best mix of employee benefits and options, while controlling employer costs.

The key difference in costs comes about as a result of pension participation – the higher the take-up, the higher the costs. Through the provision of employee aids, take-up in the Stakeholder pension is forecast to be lower for those on modest to low incomes.

Conclusion

The offer to match contributions is taken up by a relatively small proportion of employees, but is very helpful in demonstrating employer commitment.
The major cost savings come through lower take up amongst those staff who, upon advice from Creative Benefits, decide to opt out of the pension.

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This is intended as a representative example but is not a real life situation.