Face up to pension reform

It seems that small business owners are shying away from facing the heavy impact auto enrolment pensions could have on their company.


It seems that small business owners are shying away from facing the heavy impact auto enrolment pensions could have on their company.

It seems that small business owners are shying away from facing the heavy impact auto enrolment pensions could have on their company.

A survey of 404 smaller employers by the Association of Consulting Actuaries shows that just one in five of the country’s smaller businesses has begun to consider the financial consequences of new laws set to be enforced from 2014.

There are more than 1.2 million smaller firms with one employee or more in the UK and all will be required to auto-enrol their employees into a ‘qualifying workplace pension scheme’ between 2014 and early 2016 under the government’s current pension reforms, with 3 per cent of staff salaries paid into pension schemes by the employer.

Despite the cost implications, many businesses seem to be planning to assess the situation nearer to the time rather than worry now. Shireen Smith, of Azrights Solicitors, says: ‘I’m vaguely aware of it but haven’t looked at it in any detail. I’ve spoken to an insurance advisor who thought the benefits were greater than the disadvantages for everyone, so I’m not worried as of yet.’

Lexi Proud, founder of dating website ArrangeMeADate.com, says: ‘I think the plans for 2014 will get changed somewhere along the line. I don’t know how it’ll impact us but we’ll take advice from our accountant closer to the time.’

The lack of urgency from many companies disguises the magnitude of the situation. In a post recession era of tight margins and perilous cashflow situations, where will the extra money come from? It might only equate to a small per cent of payroll but it may well have a detrimental effect on carefully balanced books.

The idea of such costs being passed on to customers is unpalatable, what with the fierce competition in some sectors. Alternatives are slim, with companies being forced to take money out of pay rises a possibility.

This said, 2014 does seem an awfully long way away. For all we know just now, the legislation could arrive in time for a bull market when the cost of a little extra sentiment for the future welfare of employees might seem more manageable.

The survey finds that an opt-out rate of 35 per cent from new pensions is expected, but opt-outs create their own problems. Helen Dowsey, head of defined contribution at Aon Consulting, says: ‘If you have a high number of opt-outs you’ve got all the paperwork around that, and you’ve got to re-enrol people once every three years. This is going to be a pain for a lot of employers, particularly small ones whose payroll is maybe more manual than automated.’

Support in general for auto-enrolment is split, with 54 per cent of smaller firms saying they agree with it. It might be worth SMEs taking more of an urgent stance on the issue that will creep up on them faster than they expect.

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