APIs push Nest to the front of payroll integration race

Nest is taking big strides in payroll integration says F&TRC director Ian McKenna

As the focus of auto-enrolment staging moves to small and micro employers, many traditional contract-based pension providers are becoming far more selective about which schemes they will accept.

One organisation has a public service obligation to accept all schemes regardless of circumstances. I speak, of course, of Nest.

Historically, advisers might have regarded Nest as a market of last
resort. But a number of recent developments suggest there is a growing case for considering it in a wider range of circumstances. 

As an organisation, Nest is doing more and more to make it easier for employers and advisers to do business with it. Last November it launched Nest Connect, a service designed to help intermediaries support their employer clients. This allows advisers to set up an employer account on behalf of their client so that the scheme is ready when the employer needs to use it. It also provides the adviser with oversight of all the accounts they manage through a personalised dashboard.

Advisers can set up different levels of access for their staff depending on their role. Since launch, 2,700 third-party organisations have registered to be able to set up accounts.

Smaller firms by definition have fewer resources to allocate to auto-enrolment projects and Nest believes the most effective way to transfer data from employers to pension providers is via payroll providers.

Until recently, payroll providers have been able to take Nest file and data formats and incorporate them into their payroll systems to produce a file that is compatible with Nest.

Currently this is uploaded to Nest, which checks if matching contributions are correct and identifies any that do not match. The uploader is then asked to review and resubmit.

Once this is all fine, the employer presses a button to authorise Nest to collect contributions via a direct debit instruction. This process is followed by the majority of payroll providers.

In June, nine application programme interfaces (APIs) were made available to payroll software companies to enable them to automate and integrate procedures that upload payroll into Nest. It is up to software providers to decide how many APIs they wish to build but, should they choose to adopt the full range, a wider suite of services can be automated from scheme set-up to opt-outs and refunds.

The most basic method of data exchange is a CSV file. This is very simple and has lots of ways to go wrong, although at this time it is the method most frequently used by life companies to process such data exchange.

An XML scheme is a far more effective method but the optimal solution – certainly what I would look for from a pension provider – is
an API.  

Later this year, a test facility will be available for the 200 or so payroll software suppliers to use when building their integrations using the APIs. Four of the largest – Iris, MoneySoft, QTAC and Sage – have already been given access. Nest believes providing these services will deliver major benefits to payroll bureaus and their clients, which, given that 23,000 employers use Nest data, data formats and file utilities, appears to make sense.

When considering these issues, it is important to acknowledge the existence of the PAPDIS and Origo standards that may offer alternative options. Space does not allow me to explore the merits of each in this piece but I would expect to examine this in a future column.

Overall, Nest seems to have evolved significantly from the organisation it was just a few years ago. Nest Connect is a welcome development although there is more work to do to make it equivalent to the sort of service advisers can expect from mainstream pension providers.

Conversely, Nest’s work around payroll integration puts it at the leading edge of development in this area and significantly ahead of many life offices in terms of making it easy for employers to manage contributions via payroll.