Laura Blows speaks to energy supplier E:ON about how it managed its auto-enrolment process, and what companies preparing now can learn from its example

Medium-sized pension schemes should now be preparing for their auto-enrolment staging dates. Lessons can be learnt and pitfalls avoided by looking at how larger companies have managed auto-enrolment. For instance, energy supplier E:ON, which had a staging date of 1 April 2013, recommends three rules to follow: use existing systems, communicate the benefits of pension provision and ultimately, keep things simple.

The company began its preparations two years before its staging date. This sounds a long time to prepare, E:ON’s senior specialist – employee benefits, Ant Donaldson concedes, but “we were one of the first companies to implement auto-enrolment and the regulations were jumping around a bit at the time”.

Following a thorough review of the auto-enrolment regulation and of the existing retirement provision, E:ON’s view was to auto-enrol everyone in the company, not just those who fall under the regulations.

“We believed it was right to auto-enrol everyone and it was the simplest thing to do,” E:ON pensions policy manager Chris Osborne explains. “When we looked at the range, we felt we could not justify excluding people under the age of 22, as that is the age to capture people to get them used to saving and set a behavioural pattern.”

A similar view was taken for those employees over the state pension age. “Some of them may have inadequate retirement provision, so having a bit more may be helpful, or they may feel that they are sufficiently provided for so they choose to opt out. We felt it was not up to us to decide this, it was the choice of the individual,” Donaldson adds.

The decision to include those employees outside of auto-enrolment added approximately another 200 people, bringing the total to 3,200 to be automatically enrolled into E:ON’s existing DC pension scheme with Fidelity.

Prior to auto-enrolment, the company had fewer than 2,500 members in the scheme, the vast majority of whom in the default lifestyle fund. A review was undertaken to ensure this was fit for purpose, along with looking at the competiveness of the annual management charge, which was 0.35 per cent.

Along with being in the same pension scheme, those auto-enrolled would also be offered the pre-existing contribution choices. E:ON offers four contribution structures, a 3/6 per cent employee/employer contribution rate, or 4/8, 5/10 or 6/12, all deducted through salary sacrifice.

The costs of auto-enrolling everyone were modelled and then presented to the company’s pensions committee, its UK board and its German-based group pensions committee. Obtaining approvals to auto-enrol everyone from the three groups took approximately six months.

Once it was agreed exactly which people would be auto-enrolled, and into what, the next step was to determine the process for auto-enrolling employees.

E:ON had been using benefits software provider Benefex to manage its flexible benefits offering to employees for the past four years, and E:ON’s DC scheme members already use Benefex’s website to manage their pensions. E:ON then used Benefex’s auto-enroller module to handle making memberships live and to manage opt-outs.

Donaldson says: “What we really wanted was quite a straightforward process where the data starts with our HR system, which is fed onto Benefex’s online platform where the employee interacts. This interaction is handled by Benefex and fed back to our payroll system. We then collect all contributions, and process the opt-outs and information that Benefex has passed on, and in one lump we pass all that data across to Fidelity. It can then set up accounts and start investing the members’ money. So it would be a nice clean process from end to end.”

Despite using existing providers, there were still issues to overcome. It was established that some of the information in E:ON’s payroll was slightly out of date with Benefex’s system, meaning work had to be done to ensure the two companies’ data was completely aligned. The monthly files that are sent from E:ON to Fidelity regarding membership and contributions also had to be modified. Each step of the process was thoroughly tested along the way and where it cut across organisation boundaries, both teams conducted tests.

“The biggest headache was aligning three sets of processes, having three sets of people thrash out how the process could work. We had to identify whether we were talking about the same set of assumptions, making sure we were speaking the same language. We then had to ensure that everyone was comfortable with how we would proceed and that it was compliant from a legal and regulatory perspective,” Donaldson adds.

At the same time E:ON implemented a communications campaign to help employees appreciate and understand the benefits of remaining opted-in.

This started from 2012, with messages about auto-enrolment included in employees’ annual flex enrolment packs, with the fact that non-members did not have to wait until E:ON’s staging date to enrol highlighted. This resulted in an extra 750 people joining the pension scheme at that time.

However, the awareness campaign truly began in earnest last summer. Working with Benefex for pension communications, E:ON gave a pensions ‘scratchcard’ to non-members, highlighting the various expected retirement outcomes for different contribution rates.

Throughout October to December 2012, a series of postcards and emails about auto-enrolment was sent out to non-members. A pensions quiz was then hosted on E:ON’s intranet with a £1,000 top prize up for grabs. Around 2,500 people looked at the quiz and it generated another 250 employees enrolling into the pension scheme. A series of roadshows and seminars also took place in those offices that had low pensions take-up.

According to Donaldson, people being auto-enrolled received a minimum of eight messages in the prior six months. E:ON also secured the NAPF pension quality mark before the auto-enrolment staging date to provide employees with reassurance about the scheme.

The result once E:ON hit their staging date? Pension scheme membership is now at 92 per cent, an increase from 66 per cent in the early part of 2012.

Out of the 3,200 people who were auto-enrolled, about 850 opted out. An E:ON survey establishing why they did so found that around 10 per cent expect to be leaving the company shortly so do not feel the need to join, 10 per cent feel they already have adequate pension cover, 40 per cent do not consider a pension suitable for them and 40 per cent expect to join the pension scheme shortly.

Also, the effective communications meant that the vast majority of people who wanted to opt out did so within the 30-day opt-out window, avoiding the cumbersome process of money taken out of their pay packet and then refunded.

The awareness campaign helped to make E:ON’s staging run smoothly, as “Benefex’s helpdesk took hundreds of calls about auto-enrolment before our start date, but there were no phone calls after the first post-auto-enrolment pay day from people asking where their money had gone,” Osborne notes.

Once auto-enrolment began, the company found a few teething problems, with issues such as ensuring people who were returning from career breaks were correctly placed under auto-enrolment. Other than that, Donaldson says, it’s now simply a case of continuing the monthly exchange of data between the three organisations and monitoring the process.

By being one of the first companies to auto-enrol, E:ON is confident that it has helped set a smoother path for companies now auto-enrolling to walk down.

Summarising what he has learnt from managing the auto-enrolment process, Donaldson says: “Start planning as early as you can and use your existing processes if possible. If you can afford to, use your existing scheme and contribution rates. Also, really maximise communications so that employees see the benefits of the pension scheme.”

Laura Blows is Editor, Pensions Age

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