It is anticipated that 30,000 SMEs will be affected by auto-enrolment over the next four months – a period which is expected to be the first real test of what some consider being the most significant legislative change to workplace pensions in more than 60 years.
Auto-enrolment means that all UK employers must automatically place certain members of their workforce into a qualifying pension arrangement.
The law came into effect for the UK’s largest businesses in 2012 and there have been staging dates on a reducing basis so that from the beginning of this month, firms with a PAYE scheme size of between 160 and 249 had to be ready.
Irwin Mitchell recently conducted its own research in the area and although our survey revealed major difficulties being faced by larger businesses that have already staged, it also highlighted that many soon to be affected SMEs are underestimating the impact.
Only 36 per cent of SMEs, for example, believe they will struggle with the on-going administrative burden. This surprisingly was much lower than the proportion of larger firms which have already gone through auto-enrolment. Indeed, our study found that in the West Midlands, 32 per cent of larger businesses had taken on extra staff in order to deal with the additional red tape.
Our most recent report also found that just two per cent of SMEs expect to have problems with finding a suitable pension product, despite many financial institutions announcing that they would not be supplying a product to the sector.
The Pensions Regulator recommends that businesses should start preparing for auto-enrolment 12-18 months in advance of their staging date and although there are plenty of smaller firms that have and are doing this, there are other surveys which suggest this practice isn’t widespread.
We conducted an earlier survey last year and the overall finding was that a number had not considered key issues.
Sadly this still appears to be the case and with many still not giving themselves adequate time, I have major concerns that because SMEs do not have the systems that their larger counterparts have, the impact could be considerable.
* Fergal Dowling is head of employment at Irwin Mitchell’s Birmingham office