Small firms fear cost of automatic pension enrolment

Small firms fear cost of automatic pensions enrolment. Around half of small firms fear government plans to automatically enrol workers into pension schemes will add significantly to their costs, a survey has found.

Fifty-three per cent of firms with 250 or fewer employees said the policy would hit their bottom line, according to the Association of Consulting Actuaries (ACA). Moreover, 29 per cent said they planned to level down the contributions they made into their scheme to the minimum level required by the government to help cover the additional costs they will face.

Half of companies said they thought firms employing fewer than five people should be exempt from the new rules, while 61 per cent thought people should have to work for a firm for three months before they were auto-enrolled into its pension scheme.

While 54 per cent of small companies support the policy, according to the survey, most of the opposition comes from firms that do not currently offer a pension and will therefore be most heavily affected. Two-thirds of smaller firms do not currently offer their staff a pension.

“The cost of pensions to both employees and employers is the big issue that has prevented the extension of pension provision to date in the sector,” said ACA chairman Stuart Southall. “Much remains to be done in educating the wider public about the importance of private pension-saving to boost retirement incomes.”

Between 2014 and 2016 workers at smaller firms will be automatically enrolled into company pension schemes, although individuals will retain the right to opt out.

Workers will have to contribute at least 4 per cent of their pay, with companies paying in 3 per cent and the government adding 1 per cent in the form of tax relief.

Firms responding to the survey expect around 35 per cent of their employees to opt out of their pension scheme, much higher than the 15 per cent that larger organisations thought would opt out.

Publication date: 27 September
2010 Source: PM Online