Auto-enrolment is a subject that causes panic amongst many small businesses.
It represents a fundamental change to the way employers and employees fund their retirement years. The proposed system is vastly different than any that the private sector has dealt with before, so any accountant can understand and sympathise with these concerns. But just how reluctant are small businesses: are these concerns related to the principle, or is it more to do with the practice and the implementation?
Well, if the latest poll from the Association of Consulting Actuaries (ACA) is correct, then it’s the implementation that worries SMEs the most.
The ACA poll of 414 SMEs threw up some startling findings, principal amongst which was that more than 90% of small business owners would like to delay their auto-enrolment staging date until ongoing pension reforms are completed. However, the findings also showed that less than two thirds (62%) of employers with ten or more employees were clear about their auto-enrolment staging date and what they have to do. If that figure weren’t bad enough; the survey also found that employers with nine employees or fewer were even less confident with only 46 per cent identifying their staging date.
What’s the situation for the smallest of employees at the moment? Well, roughly 75% of small businesses with fewer than 4 employees currently offer no pension scheme at all; however, new auto-enrolment laws require these employers to enrol staff into a defined contribution pension scheme between 2014-2017 – with a minimum of 1% from the employer and one per cent from the employee. By October, 2018, these contributions must be the equivalent of 8% of employee ‘band earnings’, with a minimum of 3% from the employer and four per cent from the employee.
What does the ACA make of these findings? Well, David Fairs, chair of the ACA, was unsurprised that so small firms wanted to delay their staging date, as many pension reforms are still being squeezed through in a relatively short time frame. Mr Fairs believes this has added considerable pressure to smaller firms ‘at a time when average pay increases are likely to be well below these figures:
“In a three year period from the middle of this year, over one million small employers will have to meet the auto-enrolment challenge,” he said.
“Yes, it is right that pension provision should be available to employees in even the smallest firms, but with so many pension reforms being squeezed into a short time-frame, it cannot be surprising that smaller employers are calling for a delay in auto-enrolment.” he added.
Mr Fairs believes pausing the introduction of auto-enrolment dates for employers with 50 or fewer employees could ease concerns within the private sector. He said doing so would give all of the political parties a chance before the 2015 General Election to outline what financial measures they are proposing, so that higher minimum pension contributions from October 2018 would not undermine take-up or employment levels:
“We [ACA] believe that there could be some sense in pausing the dates when employers with fewer than 50 employees are due to auto-enrol – namely those due to auto-enrol from June 1 2015 onwards.”
If you would like more information on workplace pensions and automatic enrolment, then give Steven Glicher accountants a call on 0161 485 8007 or email info@.