Rosie Kwok says the arrival of auto-enrolment will offer pension schemes some valuable time to refine their relationships

To date, the responsibility for the management of occupational pension schemes has belonged to trustees.

Firms exercise a different kind of responsibility towards their employees as a 'good employer'. There is no compulsion to do so, though once they make a commitment to fund a pension scheme, they are financially accountable.

Auto-enrolment from 2012 brings a new Employer Compliance Regime, as quoted in The Pensions Regulator's (TPR) Corporate Plan 2010-2013. While trustees maintain their existing duties, employers will have their own responsibilities to fulfil.

This might change the way sponsors and trustees work together.

Altered roles?
What seems at first glance to be fairly simple actually turns out to be quite complicated. It is reasonable to start with the premise that employers might choose to delegate some, or all, of their auto-enrolment responsibilities to the trustees.

But what soon becomes apparent is that employers may struggle to delegate any of their responsibilities to trustees, management committees and so on, because certain responsibilities are distinctly those of employers, and are not necessarily integral to the traditional running of a pension scheme.

One of the first tasks for employers is to look at their benefits strategy and how they can align it to auto-enrolment requirements. For example, what qualifying arrangement will be their vehicle of choice? How much adjustment, if any, is needed and what are the costs?

Many large employers have more than one scheme, often including a contract-based arrangement and we are about to add the new National Employment Savings Trust (NEST) into the mix.

Pension provision today is complex. You could argue that, if there was a crystal ball, there are quite a few things relating to pensions that would have been done differently. Although we cannot, at this stage, foresee how retirement provision will look post 2012 once employers have completed their strategy discussions and decided on their auto-enrolment vehicle(s), past performance would indicate that the complexity will grow.

The employer responsibilities for implementing auto-enrolment, as already set out in regulations, are extensive. So where might these overlap with the responsibilities of the trustees?

Information
One area is the provision of prescribed information to job holders within prescribed timescales. We know that this information needs to vary, based on the jobholder's eligibility for auto-enrolment and whether they have qualifying earnings.

However, this is prescribed information about auto-enrolment and it is not yet clear how this fits with the current requirements of trustees to provide information to new members of pension schemes under the disclosure requirements. The job holder information that has to be provided by the employer is largely generic and, as things stand at the moment, the responsibility for more scheme specific information may still sit with someone else.

Perhaps more will become clear once we have the new disclosure regulations.
At the moment it feels a little like a jigsaw where all the pieces do not fit together quite as neatly as they perhaps should.

Data
As well as supplying information to workers, the employer is also responsible for ensuring prescribed data is sent to the scheme administrators. But what about data over and above that minimum?

For trust-based schemes that must surely still be the responsibility of the trustees, particularly if you take into account TPR’s guidance on record keeping.

As we know, TPR is going to be responsible for monitoring and enforcing the Employer Compliance Regime (ECR). This will inevitably require reporting by the employer to TPR. One question that largely remains unanswered is who is going to maintain the data that needs to be provided? Traditionally, any data relating to pensions would have been the territory of the trustees or providers.

The requirement will now be to report at workforce level, which means that the employer is likely to be looking for one team to provide this service. Potentially, this could be human resources, payroll, the scheme administrators, flex administrators or another team. There is currently a lack of clarity around which system will drive the processes, communications and reporting but, whatever solution is arrived at, it must meet the needs of both employer and trustees.

There is clearly a role for the trustees in the opt-out process as this is defined in the legislation. This is, however, an administrative role and is reactive. While TPR will not specifically require information on the number of members who opt-out, the likelihood is that trustees and employers will be interested in those who still choose to leave a scheme but after the opt-out period. These will, generate either a refund (if the scheme is trust-based) or short service transfer out.

If the scheme is contract-based, benefits have to be retained in the scheme with the accompanying headache generated by small defined contribution (DC) pots.

Communications
The management of a communication strategy will need to be a joint effort.
After the staging date, the employer needs to communicate with all existing members of qualifying schemes, but as they are already members it is likely that the trustees would want to review and input into any proposed communication. It should not be forgotten that there are many other legislative and market changes taking place such as the cessation of DC contracting out. These changes will need trustees to think about the method they use to communicate. Trustees and employers together may wish to create a pensions 'brand' to apply to both potential and existing members.

As well as maintaining individual records, the employer has to provide information to TPR both shortly after the staging date and every three years thereafter. This is not unlike the process that trustees follow in submitting scheme returns to TPR, but using different information.

The type of information includes numbers of job holders automatically enrolled, numbers who were already members at the staging date and, to complete the reconciliation, the number of ineligible job holders. This information may already be available at employer level otherwise it could necessitate pulling together information from a variety of sources potentially including trustees.

In any event, trustees and employers each need to be clear about the information they need to manage for their retirement provision strategy, individual schemes, and the management of auto-enrolment. This could prove time consuming and problematic where there are multiple arrangements.

It is not yet clear how the relationship between employers and trustees will evolve after 2012.

What is clear, however, is that being joined up and establishing the right relationships between employers, trustees and providers is going to be key to employer compliance, continued trustee compliance and jobholder engagement.

Rosie Kwok is a principal at Mercer

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