AUTOMATIC ENROLMENT: Briefing 96

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1 DECember 2013 Briefing 96 AUTOMATIC ENROLMENT: Lessons from the NHS More than 246 NHS organisations have already implemented their automatic enrolment duties, affecting over one million members of staff. By February 2018 all organisations in England and Wales will need to have implemented automatic enrolment for eligible staff in line with the Occupational and Personal Pension Scheme (Automatic Enrolment) Regulations Staging for the NHS began in March 2013 and will continue until the smaller and newer organisations stage in This briefing highlights the experiences of NHS organisations that have already successfully implemented automatic enrolment, to help you to evaluate and benchmark your progress and provides help and guidance for those organisations about to reach their staging date. As an employer s duties do not stop following their initial staging date, this briefing also helps you understand the ongoing measures needed to continue delivering automatic enrolment effectively. Key points Start the process early. Communicate with workers throughout. Base any decisions on the needs of your organisation. Consider automatic enrolment alongside your reward offer. Your employer duties do not stop following staging.

2 DECember 2013 Briefing 96 Background The NHS Employers organisation has supported the implementation of automatic enrolment through web-based resources, a dedicated query handling service, webinars and a bespoke consultancy service. Our materials are tailored to the needs of the NHS, based on The Pensions Regulator guidance. We have collected feedback from employers undertaking automatic enrolment through site visits, telephone calls and a survey. Findings from NHS organisations that have been through the process help to form the basis of this briefing. Quotes from survey responses and case studies have also been included. Seven steps to automatic enrolment The Pensions Regulator has developed a seven-step approach to guidance for automatic enrolment. NHS Employers shared this model in the development of our web resources, reflecting the needs of NHS organisations. The seven steps are outlined below. Each step contains information about the guidance that was shared, the learning we collected from the NHS, key messages and case studies. The seven steps to automatic enrolment Step one: Your staging date Identify your staging date at as early a stage as possible and understand the options available to you Step three: Choose your pension scheme The NHS Pension Scheme was the default scheme for most workers but every employer must also have an Alternative Qualifying Pension Scheme in place Step two: Assess worker status Categorise all workers, not just employees Step four: Postponement and transition Take the important decision on whether to use postponement or transition Step five: Communications The importance of communicating directly with all workers Step seven: Register Register with The Pensions Regulator and maintain a record of all your automatic enrolment activity Step six: Making contributions Ensure contributions are made in a timely manner 2

3 Step one: Your staging date Staging in the NHS Automatic enrolment is being introduced on a staged basis, with individual staging dates based on an organisation s PAYE scheme size as at April Staging for the NHS began in March 2013 and will continue until Contractual arrangements Some trusts have used this opportunity to consider their current contractual arrangements with workers, ensuring that robust arrangements are in place documenting a clear line of responsibility between the worker and employer. It has taken a great deal of resources to ensure successful compliance Any organisations established after April 2012 will have a staging date of September This affects a large number of NHS organisations. It is the responsibility of the employer and not the payroll provider to ensure readiness for staging. The staggered approach to staging helped organisations with later staging dates to learn from those who staged earlier. Implications for HR Record keeping Many organisations have applied new and improved practices to ensure all records are maintained in line with The Pensions Regulator requirements. The requirement to communicate with every worker means it is essential that all contact details are accurate. Some organisations have carried out a communications exercise, such as a survey to all staff to establish whether the contact details held were up to date. This has not always generated a good response, but in some cases it has opened a dialogue with harder-to-reach members of staff, such as those without access to a computer. Many employers have held workshops and drop-in sessions targeting these workers. Implications for finance Many organisations went beyond exploring the initial costs of automatic enrolment, such as the cost of additional administration or communication costs, to include a detailed analysis of the impact additional employer contributions would have on their organisation. Some organisations also considered the impact of additional contributions alongside the prospect of an ageing workforce and the implications of a new 2015 scheme. The NHS Employers survey found that 50 per cent of respondents had undertaken an assessment of the potential financial impact of automatic enrolment. Of those that had not, many believed it would add value and they would consider doing this ahead of their staging date. 3

4 DECember 2013 Briefing 96 Case study: Sheffield Teaching Hospitals NHS Foundation Trust Payroll services at Sheffield Teaching Hospitals NHS Foundation Trust (STH) were involved in the successful staging of three trusts in Sheffield: Sheffield Children s NHS Foundation Trust; Sheffield Teaching Hospitals NHS Foundation Trust; and Sheffield Health and Social Care NHS Foundation Trust. The payroll team acts as an inhouse service for STH and provides services externally for the children s hospital and the social care trust. The payroll team was responsible for the successful staging of all three trusts, working alongside colleagues in HR and finance. Staging the trusts independently has brought the added benefit of shared knowledge and experience. STH firstly established a project board to understand the impact of automatic enrolment. They were responsible for ensuring the necessary data was available, the required resources in place and that directors were informed. The board also had the role of exploring whether to use postponement or transition. The project group included representatives from HR, payroll and pensions. Monthly meetings allowed the sharing of ideas and a forum to discuss the lessons learnt and next steps throughout the enrolment of all three trusts. As one of the earliest stagers, STH discovered inconsistencies with some data and functionality with Electronic Staff Record (ESR). STH liaised and worked with ESR to first highlight issues and then find a solution, which assisted themselves and other organisations. Having a good relationship with both ESR and NHS Pensions helped in the successful staging of all three trusts. The NHS Employers survey found that 26 per cent of survey respondents felt the regulations were difficult to understand and ambiguous in parts, but NHS Employers and The Pensions Regulator produced additional guidance to help employers through the process. What challenges did you face? Understanding regulations 24% Administering two schemes 13% Use of ESR system for PAE 33% Identifying workers 13% Staff not reading comms 17% Taken from an extract of the NHS Employers automatic enrolment survey, September The survey received 44 responses and enabled both NHS Employers and our communication partners to respond to any queries. ESR worked closely with NHS Employers and survey respondents to explore how the system and their guides could best suit the needs of the service. Following this a range of resources were updated and these received excellent feedback from employers. We continue to work closely with all our communications partners to ensure an effective delivery for the NHS. 4

5 Step two: Assessing worker status Assessing 13,500 records (posts not people) took over four months Identifying workers The first challenge was identifying those staff for auto enrolment understanding who is eligible A crucial part of the early staging process was the requirement to identify all workers and categorise them for enrolment purposes. Worker goes beyond the traditional description of an employee it includes anyone who works under a contract of employment, or has a contract to perform work or services personally, and is not undertaking the work as part of their own business. In order to be a worker, a contract does not have to be in writing and the terms of employment can be implied rather than explicitly stated. Early feedback showed the need for employers to consider their contracts with interpreters and chaplains, who may not perform work on a regular basis but may be categorised as workers for the purposes of automatic enrolment. All NHS employees have a contractual right to membership of the NHS Pension Scheme. This is unaffected by the automatic enrolment regulations. All employees continue to be enrolled into the NHS Pension Scheme when starting work, regardless of their worker status, due to the existing contractual right. Key learning from the NHS when assessing worker status: start the assessment early to allow time to assess complex contractual arrangements it is important to establish workers, not just employees communicate directly with staff about their status, don t just rely on available data pay particular attention to staff with multiple contracts, as a manual assessment may be needed use the process as an opportunity to review current contractual arrangements liaise with any external providers to establish your responsibility towards certain categories of worker, for example if you have an independent bank staff provider. Bank staff 15 per cent of NHS Employers survey respondents said they had difficulty assessing bank staff and additional work was required, such as tailored communications for these workers The complexity of assessing bank staff has prompted trusts to communicate directly with them to fully understand their contractual arrangements. These workers often have contracts with multiple trusts, which an employer may not be aware of. Many trusts have used questionnaires to communicate directly with multiple post holders to establish their existing pension arrangements and are now continuing to improve their awareness of employees with multiple posts. 5

6 DECember 2013 Briefing 96 Step three: Choose your pension scheme The NHS Pension Scheme must be the initial scheme of choice and an AQPS should only be considered for workers who are not entitled to NHS Pension Scheme membership The NHS Pension Scheme The NHS has an existing defined benefit pension scheme, membership of which is a contractual right for all employees. The NHS Pension Scheme regulations state that in all automatic enrolment situations where a worker is entitled to scheme membership, the NHS Pension Scheme is the scheme that is offered in the first instance. NHS Employers worked with NHS Pensions to ensure these rules were appropriate for NHS employing organisations. Access to an alternative qualifying pension scheme is only allowable where a worker is not entitled to NHS Pension Scheme membership. The NHS Pension Scheme regulations were amended to reflect the decision for it to be the scheme of choice for all workers. This decision was made in order to protect the existing scheme and its members and to avoid the creation of a two-tier pension system. Employers are still responsible for identifying any workers restricted from NHS Pension Scheme membership. NHS Pension Scheme restricted membership The Government Actuary s Department has estimated that 10 per cent of retirees from NHS employment are re-employed each year within the NHS and are excluded from the NHS Pension Scheme. This is likely to be the largest group of employees with restricted membership who require access to an alternative scheme. Good practice when choosing an AQPS: liaise with board members early in the automatic enrolment process explore all options from potential alternative qualifying pension scheme providers communicate directly with potential providers and build relationships ensure any additional scheme meets the needs of your organisation and workers. Ongoing work Organisations can change their scheme provider at any time providing they act in line with any contractual arrangements. An AQPS must be available to workers at all times from the staging date. Ongoing help will be essential. When we have had occasion to contact NHS Employers with queries, the responses have been very prompt Case study: University College London Hospitals NHS Foundation Trust University College London Hospitals NHS Foundation Trust (UCLH) explored a range of available AQPS options and briefed its board of directors. The board then selected the most appropriate provider for the trust s requirements, in line with internal policies and procedures. UCLH appointed the National Employment Savings Trust (NEST) as its AQPS provider after establishing that this was the most appropriate scheme for its workers. Its considerations included administration, any scheme charges, the number of workers potentially joining the scheme and wider workforce planning issues. 6

7 Step four: Postponement and transition It is estimated that 55 out of 246 organisations which staged up to September 2013 chose to use the transitional period. A key decision for each employer was whether to apply postponement to certain categories of worker, or apply use of the transitional period applicable to all eligible job holders Postponement Postponement suspends the duty of assessment from one day to a maximum of three months. It can be applied to one worker or a group of workers and, in some cases, has been used by organisations who want to align automatic enrolment with a financial year. Some organisations have used postponement to suspend the duty of assessment from 1 March to 1 April to fit with internal processes and create less disruption, such as not having to potentially refund contributions from a different financial year. Postponement has also been used to align the staging of different trusts that remain the responsibility of one payroll provider. Lessons learnt it is important to make decisions as far in advance as possible, allowing more time to implement any required organisational change and research available options many organisations did not consider whether to use the transitional period far enough in advance, which had implications for their workload closer to the staging date continuing to communicate with all workers throughout the process has proved to be successful and has resulted in higher levels of worker engagement. Transition Transition can only be used from the staging date and applied to all eligible job holders. Transition delays the enrolment of eligible job holders until a set date 30 September This date is fixed and cannot be brought forward. Almost half of the NHS Employers survey respondents said they were considering using the transitional period. 7

8 DECember 2013 Briefing 96 Step five: Communications Our difficulty was identifying why people were not in the scheme so we issued questionnaires Ensure all parties are engaged at the same time The main communication requirement is to write to every worker, regardless of their worker status or existing pension arrangements. Employers who are cautious about sending all communications by letter have supplemented letters with staff workshops, bulletins and payslip messages. NHS Employers has encouraged organisations to work with local trade union representatives to ensure the most effective communication methods have been used. Sheffield Teaching Hospitals NHS Foundation Trust supplemented its statutory letters with additional materials, including a questionnaire to determine the status of workers it had identified as not being in the NHS Pension Scheme. The questionnaire established the reasons for non-membership in order to determine eligibility for the NHS Pension Scheme or an alternative scheme under the regulations. North West Pensions Auto Enrolment Group (NWPAEG) letter templates The group identified the need to develop a suite of automatic enrolment related letters that could be used within the NHS. These letters were based on The Pensions Regulator (TPR) statutory wording but were fine tuned to reflect NHS needs. The letter templates were produced with input from several trusts. The templates have been used by a number of trusts, and received excellent feedback. They are available to download from Lessons learnt involve all key stakeholders from the beginning auto enrolment is not just about pensions it has business process implications engagement of HR, workforce planning, payroll and finance is critical communication with employees is not just about the formal letters required by The Pensions Regulator identify the need for wider staff communication and awareness of pension reform use team briefings, posters, payslip attachments and global s auto enrolment is a complex process and there is no single overview approach do not underestimate the impact on processes post staging date work alongside trade union representatives. 8

9 Step six: Making contributions Contribution levels Employers make contributions for all eligible and non-eligible jobholders who opt into a scheme. All contributions towards the NHS Pension Scheme continue to be made in line with the schedule of contributions. NHS Pension Scheme rules take precedent over automatic enrolment rules and therefore the existing contribution rates continue to apply and are not replaced by automatic enrolment minimum contribution levels. Contributions to an alternative qualifying scheme must be made within the payment schedule. Annual and lifetime allowance Automatic enrolment has implications for workers who are subject to the limits of the annual and lifetime allowances, particularly higher earners. If a worker has previously opted out of the scheme due to restrictions on the annual and lifetime allowances, then upon being re-enrolled they have been required to opt out within the automatic enrolment timescales to remain within the limits. Many trusts have chosen to communicate directly with this group of workers to ensure they are made aware of any potential consequences resulting from a late opt out. Good practice: Increasing contributions The contributions towards an alternative scheme were set at a lower rate than NHS Pension Scheme contributions, but each organisation has the option to offer over the statutory minimum contributions for alternative scheme members. As part of its total reward approach towards recruitment and retention, Sheffield Teaching Hospitals NHS Foundation Trust made the decision to offer an employer contribution higher than the statutory minimum. 9

10 DECember 2013 Briefing 96 Step seven: Register The role of The Pensions Regulator The registration process is required to show that employers have met their automatic enrolment responsibilities under the regulations. This requirement is used by The Pensions Regulator to identify employers who need additional support and to make contact with those who have not complied. Good practice: Project plans and joint working Project plans help you keep a record of all activity. You may be required to demonstrate the activity log to The Pensions Regulator. The North West Pensions Special Interest Group regards project plans as one of its key lessons learnt. The group believes that a good approach consists of a project plan for ongoing work, both before and after staging. A plan helps ensure that all parties involved know what is expected of them to effectively execute automatic enrolment. Working alongside other organisations that have been through, or are going through, the automatic enrolment process helps share experiences. Automatic enrolment in the future By 2017, all NHS organisations will have staged under the automatic enrolment regulations. However, employers must continue to comply with the regulations into the future. All new starters will continue to be both contractually enrolled and assessed for automatic enrolment purposes. Employers must continue to ensure that both the NHS Pension Scheme and an alternative scheme are available for workers at all times. If workers are not currently in a scheme, or opt out of a scheme at a future date, they may maintain rights. Employers must remain aware of these rights. Once organisations have information relating to the opt out rates for their organisation, they may wish to review the appropriateness of their alternative scheme provider to ensure it meets the needs of those who chose to remain active members. Organisations are required to carry out a re-enrolment exercise every three years following staging. NHS Employers will continue to support you throughout this process. 10

11 Future activity Department for Work and Pensions consultation The Department for Work and Pensions undertook a consultation on proposed changes to the automatic enrolment regulations in spring The proposed changes will be incorporated from November Employers need to put into action any changes in line with the regulations, and ensure they are aware of any future changes. NHS Employers will provide regular updates about any changes to the automatic enrolment process through our website and NHS Workforce Bulletin. The new 2015 scheme In 2015 the NHS will see the introduction of a new Career Average Re-valued Earnings (CARE) pension scheme. From April 2015, this scheme will become the default scheme for all new starters who are entitled to NHS Pension Scheme membership. The majority of NHS Pension Scheme members will transfer to the new scheme. Support for employers and further information Throughout the introduction of automatic enrolment in the NHS, we have worked closely in partnership with key stakeholders, including The Pensions Regulator, the Department of Health, the Department for Work and Pensions, Electronic Staff Record and NHS Pensions. These partners have been invaluable in ensuring that information, guidance and key messages for the NHS have been aligned and consistent. We will continue to support NHS organisations through the automatic enrolment process and future updates to the NHS Pension Scheme. If you would like further information, or to find out more about becoming involved in the scheme arrangements, details can be found at NHS Employers is contributing to discussions on the new scheme design, alongside staff side representatives, through the NHS Pensions Governance Group. We will continue to update employers on any changes, and are developing a range of materials to support employers through the transition to the new scheme. 11

12 NHS Employers The NHS Employers organisation is the voice of employers in the NHS, supporting them to put patients first. Our vision is to be the authoritative voice of workforce leaders, experts in HR, negotiating fairly to get the best deal for patients. We help employers make sense of current and emerging healthcare issues to ensure that their voice is front and centre of health policy and practice. We keep them up to date with the latest workforce thinking and expert opinion, providing practical advice and information, and generating opportunities to network and share knowledge and best practice. We work with employers in the NHS to reflect their views and act on their behalf in four priority areas: pay and negotiations recruitment and planning the workforce healthy and productive workplaces employment policy and practice. The NHS Employers organisation is part of the NHS Confederation. Contact us For more information on how to become involved in our work, NHS Employers NHS Employers 50 Broadway London SW1H 0DB 2 Brewery Wharf Kendell Street Leeds LS10 1JR This publication was produced by the NHS Confederation publications team: publications@nhsconfed.org This document is available in pdf format at Published December NHS Employers This document may not be reproduced in whole or in part without permission. The NHS Confederation (Employers) Company Ltd. Registered in England. Company limited by guarantee: number Ref: EBRI09601