Posted tagged ‘human resources outsourcing’

A Look at Automatic Enrollment in the U.S. to Predict the Success in the U.K. and Potential Opportunities for HRO Service Providers

December 8, 2011

There is currently a global crisis of people failing to save enough funds for their retirement. This reality is faced by those nearing retirement, and it’s affecting millions more. Reasons for this range from a lack of an employer plan to it being too confusing to simply just not getting around to it. In an effort to manage the crisis, legislation has been enacted to facilitate the ease of saving.


In the U.K., the primary answer lies in the automatic enrollment (AE) requirement of the Pensions Act of 2008. The AE requirement compels employers to automatically enroll their employees into qualifying pension schemes and to contribute to the pension as well. AE will commence in October 2012 and will be rolled out in stages based on employer size until September 2016 with large organizations (i.e., those with more than 120,000 employees) starting first.


Trying to predict the success that AE will have in the U.K. is difficult, but perhaps the Pension Protection Act of 2006 (PPA) in the U.S. can provide some guidance.


Recently, Fidelity highlighted the positive impact that the PPA has had on participation rates among other things. Fidelity’s plans that offer AE have increased to 21%, up from 2% in 2006. Furthermore, the AE feature is a part of 63% of plans with more than 50,000 participants, and Fidelity has seen participation increasing as a result of AE.


The average participation rate for plans without AE is 55%; but with AE, the participation rate is 82%. More interesting is the effect that AE is having on younger employees, who are typically not too concerned with saving for retirement. For employees between ages 20 and 24 years old, the participation rate for plans with AE is 76% and only 20% for plans without AE.


While the PPA in the U.S. does not require AE by all employers, it is proving to be an effective way to encourage participation to actively save for retirement, and it can also provide further opportunities for HRO service providers.


In the U.K., for example, Capita has already won business related to the AE requirement of the Pensions Act of 2008. It was awarded a 7 year £105m contract by the U.K. Pension Regulator to support direct communications and transactional processes with employers for AE that began in October 2011. Capita’s responsibilities include:

  • Communicating campaign messages to employers
  • Communicating AE duty dates to employers
  • Ensuring employers register with the regulator
  • Operating a customer contact center
  • Some enforcement activities such as administering compliance notices and penalties for non-compliance.


Shortly after Capita’s contract award, Xafinity became the first pension administration provider to launch an AE offering that:

  • Identifies who to automatically enroll and when to enroll them
  • Sets a course of action for all stakeholders
  • Runs financial analysis on different scenarios and take-up rates based on employee data, and selects a strategy that supports corporate objectives
  • Provides AE administrative services including member communications; employee identification; auto-enrolling, opting out, and re-enrolling employees; and reporting.


Expect to see more HRO service providers based in the U.K. and others doing business there to launch an AE offering. Some may be late to the game though since the first staging date is less than a year away and compliance can take ~18 months to achieve. It is an area with lots of potential and service providers like Capita and Xafinity are well-poised to gain the first-mover advantage.


Amy L. Gurchensky, Research Analyst, HRO, NelsonHall


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The Forecast for Recruitment Process Outsourcing (RPO): Peeping Above the Parapet?

May 11, 2009

Welcome to NelsonHall’s new HRO blog! Auspicious timing, as I spent several days last week at the 7th annual HRO World conference presenting on and speaking with a wide range of people about all things RPO.

So, given three (and now into the fourth) quarters of rip tide turbulence, will RPO stay afloat?

RPO’s Current State              

External hiring has been significantly reduced in the past three quarters due to budget cutbacks, in turn impacting provider revenues. But RPO providers have been weathering the storm in a number of ways including:

  • Increasing focus on internal hiring, despite lower revenue gains. According to the results of NelsonHall’s new RPO market analysis, to be published in mid-May, 92 percent of providers today are providing internal staffing (i.e., internal mobility) as compared to just 53 percent in 2007
  • Expanding contract scope to include new geographies, particularly in emerging economies in Asia Pacific
  • Developing and offering value-added services including talent planning, employment branding, employee engagement, employee retention and outplacement services. While clients still have a limited appetite for discretionary services in general, those such as employee engagement and outplacement are exhibiting significant demand

Low Single Digit Growth Expected in 2009

While these attempts at stemming the low tide are helping, our research predicts RPO revenue will grow at only low single digit rates in 2009. This is quite low growth in comparison to the 20 percent CAGR experienced in the RPO industry from 2006 to 2008. But most RPO providers will be satisfied with these low growth rates as the staffing industry (non-RPO) has seen significantly declining revenue in recent quarters, in some cases as low as negative 25 percent.

One of the keys to taking advantage of this delicate market is increased contractual flexibility. Clients are demanding scalability and a move from fixed to variable costs to guard against being sunk with fixed costs should the economy take a further turn for the worse, and vendors will need to address these concerns while the market retains its present nervousness.

All in all, RPO hasn’t seen the brightest weather in recent months, but expect the tide to turn in the second half of 2009 and smoother sailing in 2010 and beyond. Though the RPO market in Europe remains depressed, there are some early signs that the RPO market in North America has bottomed out and is now starting to stabilize. Overall, we expect to see significant market growth by the second quarter of 2010.

Gary Bragar, Lead HRO Analyst, NelsonHall

BTW – HRO Insights blog postings will rotate between me and my colleague Helen Neale, so keep an eye out for our evidence-based insights! Topics will include the benefits administration market, emerging economies HRO, changes in HRO contract scope and many more.