Categories: Pensions - Retail
Ian Price looks at how small to medium sized businesses are dealing with auto-enrolment
I am sure it's true, the older you get, the quicker time goes. I cannot believe we are now over halfway through 2012 and the start of auto-enrolment is nearly upon us.
Over recent months I have been running a lot of seminars on auto-enrolment. These seminars are aimed at small businesses and accountants, and the feedback has been fascinating.
The starting point is everyone agreed that we need to do something to increase retirement provision within the UK, but it is clear that small businesses are really not aware of the implications of auto-enrolment and how it will affect their businesses.
A lot of small businesses are currently in "survival" mode, hoping to make a profit, no matter how small, just in order to survive from year to year.
We are in a very competitive environment where employers do not find it easy to pass on any additional costs to their customers. This means that for a lot of smaller employers, the cost of auto-enrolment will affect their profitability.
A lot of people have been ignoring the impact of auto-enrolment for small businesses as the staging date is a long way off so they don't really need to worry. I'm afraid from my experience this is not the case.
I recently met one company which had just secured a five year contract. When pitching for the business they had not factored in anything to do with auto-enrolment. They have just worked out that if every member of staff actually participated and there were no opt-outs they would end up losing money on the contract.
From an accountant's point of view, it is very difficult to help employers with cash flow projections about the impact of auto-enrolment, because nobody knows what the opt-out rate will actually be.
It is clear that some small businesses are looking at ways in which they can offer auto-enrolment without affecting their business. I recently met an employer who runs a manufacturing business in the East Midlands, employing around 220 staff.
He said the only way in which he would be able to afford auto-enrolment is not to give any pay rises and redirect the savings into pensions. This might sound like an extreme case, but is not inconsistent with the kind of comments I am getting all over the UK.
I do not want to be all "doom and gloom". It is clear from going out and talking to companies, they are beginning to start to recognise the issue and are considering when their staging date is and possible implications for their businesses.
Accountants are starting to talk to companies about the implications of auto-enrolment. It is clear that most small businesses want a very simple solution, in order to comply with the auto-enrolment legislation.
A number of the employers who do not already have schemes in place are already looking at NEST, People's Pension and now: Pensions to get an idea of what potentially they may use to facilitate their auto-enrolment requirement.
It is essential that we all get behind this, explaining exactly what the employer's liability is, their staging date and also helping them come up with a solution to make sure they comply with the rules.
Cost of legislation
From my point of view, small businesses are finding auto-enrolment another barrier to employing people. We can take the higher moral ground in the fact that making pension contributions is good for their employees, but ultimately it's the employer and the employees that have to bear the costs of this legislation.
I have said on numerous occasions that I am not one of those who believe the employers should be the gatekeeper to retirement provision. None of the small businesses I have met over recent months see this as one of their key roles.
In fact, given what's happened with the demise of the DB schemes, they are running away from anything to do with pension provision. There is no question that auto-enrolment will continue to gather pace. It's also important that all employers, no matter how many people they employ, start to understand the impact of auto-enrolment.
My hope is that employers, no matter how big or small, get to grips with this as soon as possible. They plan, they look at the options and then they act. What I don't want to see, which can sometimes be a business trait, is the famous "ostrich effect" and by this I mean that businesses bury their heads in the sand and hope the auto-enrolment problem will just go away.
Ian Price is divisional director of pensions at St. James's Place
Audio / Visual
This year we celebrate the fifth annual PPR Structured Product Awards. The 13 awards are divided into two, covering the products delivered to market over the past year and the support services that are also essential to the market. All the awards are designed to highlight not just the winners but the strengths and capabilities of the range of providers in this highly innovative market.
Job of the week