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Will Hutton

Will Hutton

Principal, Hertford College, Oxford University and chair of the Big Innovation Centre

Tuesday 04 Dec 2012
Pension reform – a necessary cost? Where’s the upside?

Pension reform – a necessary cost? Where’s the upside?

While many businesses are still at the early stages of understanding what pension reform means to them, one thing is clear, it is going to cost business more money. 

In fact most businesses, when they get into the detail, will realise it is going to cost more than they had anticipated. The focus has been centred on the cost of the new pension contributions. Few businesses are accurately factoring in costs of technology and administration. This is compounded, in that some of the pension providers claim to offer ‘free’ hub/black box solutions that, on the face of it, reduce the technology/administration costs. 

However, there is no such thing as a free lunch. The piece that is being missed is that these solutions cannot stand alone. They require significant interfacing or ‘wiring’ to render them effective. Without timely pay data from the payroll, they cannot make the most basic of decisions, such as who is to be auto-enrolled. 

The devil is in the detail, and in reality there is a lot of wiring needed to make these solutions work and, in some cases, with variable pay and weekly pay cycles they simply cannot work at all. Bespoke, one-off interface work is very expensive, so the more ‘wiring’ needed to make a solution effective the more expensive it becomes (both to build and to maintain). Due to the volume of work needed in the industry, those being asked to ‘wire-up’ these ‘solutions’ have resource constraints and simply will not be able to service this demand. 

Ceridian thinks there are better ways to meet the pension reform demands and help mitigate these costs on business. 

1. By tightly integrating their pension solution into their payroll and HR systems, wiring problems minimise and one-off bespoke elements disappear. Also the timing problems (acute with variable pay/weekly pay) are removed. 

2. Ensure the standard pension solution offers self-service capabilities for communications with employees. This significantly reduces the administration costs; massively reduces communication costs and crucially reduces the workload that will otherwise fall on over-stretched HR/payroll resources. 

3. Makes sure your payroll/pension solution includes sophisticated salary sacrifice capabilities (without the need to go down the path of flexible benefits) as this can offset some or all of the costs associated with the new pension costs. We have saved customers up to millions of pounds by helping them set up salary sacrifice schemes. 

4. For businesses with variable workforce needs, advanced workforce management capabilities that work in concert with payroll can optimise who is scheduled on which shift, thereby keeping below key thresholds, which can reduce pension, NI and related employee costs. Ceridian has seen total wage bill cost reductions of between 2-5% with such approaches. 

So the message is clear, understand the true cost of pension reform. Do not get seduced into thinking there is a free solution. Pension reform is complex and requires a lot of careful planning, thought and systems’ integration. Work with your existing payroll and HR providers, without them none of the solutions will work. Explore what they can do for you, including ways to mitigate your new costs. Make sure you have locked-in resource needed to implement your chosen solution and allow at least six months to complete your project. Being late and expecting resource to be available with sufficient time to complete the work is a dangerous game! 

David Woodward, chief product and innovation officer, Ceridian UK