Pension reform will force employers to cut benefits

Auto-enrolment will force small employers to reduce benefits and potentially freeze recruitment to meet rising pension costs, trade bodies have warned.

Speaking at a House of Commons work and pensions select committee hearing this morning, a number of employer organisations raised concerns about the level of costs for small and micro-businesses.

British Chambers of Commerce (BCC) director general John Longworth said small businesses would find it "extraordinarily difficult" to meet the demands of auto-enrolment.

He said: "To handle this will be extremely difficult for small businesses even if they can grasp the implications and deal with the bureaucracy, they will find it extraordinarily difficult to meet the demands and implement it.

"Many will have to depress other benefits and remuneration packets."

He said it was important to "minimise the consequences" of auto-enrolment so that it didn't stop businesses from hiring new employees.

The Federation of Small Businesses (FSB) head of policy Graeme Fisher raised concerns about the administrative costs for small firms.

He said: "The main concerns are around administration costs for small businesses to run a scheme. The main point being that small businesses are not experts on pensions policy."

Fisher said the reforms had moved away from Lord Turner's original recommendations and become too complex.

Confederation of British Industry director of employment policy Neil Carberry, pictured, said The Pensions Regulator had an important role to play in engaging small businesses.

He said: "The single biggest challenge is to get the regulator to speak the language of small employers. To come with the arm around the shoulder before the big stick comes out. That's the critical thing for us."

Trades Uunion Congress head of campaigns and communications Nigel Stanley said employers could not be relied upon to choose the best scheme for their employees through market incentives alone.

He said: "We need a regulatory regime which if employers make choices not around very lowest possible charges and not around deferred member penalties then employers need a very good reason for not offering that very best deal to their staff. We are not there yet.

"Relying on the good intentions of employers works, but it doesn't work all the time."