Smaller Businesses ‘Not as Prepared as They Think’ On New Rules
By David Shirt
A survey examining the readiness of SMEs for auto-enrolment pension rules has revealed that with less than a year to go, many are at risk of facing significant fines for non-compliance.
According to the report which questioned 257 organisations across the UK, many businesses revealed that they had not yet fully considered some of the key issues that need resolving ahead of implementation of the new rules.
The comprehensive study by national law firm, Irwin Mitchell, found that almost 60% of firms had not budgeted for the additional costs that can be incurred as a result of auto enrolment, whilst nearly 40% said that their payroll system was not compliant. Six out of 10 businesses said that they had not checked the pensions provisions contained within their staff contracts and assessed how they affected plans for auto-enrolment.
Tom Flanagan, partner and national head of Irwin Mitchell’s Employment & Pensions Group, said: “There are some uncomfortable findings in this report. Although 80% of SMEs say that they have started their auto-enrolment preparations, on closer inspection it appears many are not ready in some crucial areas.
“There are many pitfalls to watch out for, including changes to employment contracts and pension scheme rules, restructuring employee benefits along with reviewing and replacing HR and payroll systems. Choosing the wrong option could involve committing time and resources in the wrong areas, or with an unsuitable solution.”
Launched in October 2012, auto-enrolment is considered to be the most significant shake-up of occupational pension schemes in more than 60 years. It makes it necessary for all UK employers to place all ’eligible job holders’ into a qualifying pension arrangement. All employers are obliged to contribute to that pension arrangement and monitor their workforce and keep records of their workforce’s membership of the scheme.
The new laws came into effect for the UK’s largest businesses last year and, during this summer, organisations employing between around 4,000 and 2,000 will need to comply. From April 2014, businesses with between 250 and 160 employees will need to be ready. Firms with fewer staff members will be required to comply with the rules by a particular ‘staging date’ according to their size up until 2018.
Key findings from the report were:
- Nearly 40% say that the main challenge of auto-enrolment is affordability, closely followed by back office administration
- Almost a quarter of SMEs do not offer pensions to employees and over a third (37.2%) say that the scheme that they operate does not comply with auto-enrolment or don’t know.
- Almost 60% say that they haven’t budgeted for the additional costs that may be incurred as a result of auto-enrolment or don’t have a handle on the budget
- Nearly 40% say that their payroll system isn’t compliant with auto-enrolment
- Almost six out of 10 businesses have not checked the pension provisions contained within staff contracts and assessed how they affect plans for auto-enrolment.
- Only a third plan to introduce a salary sacrifice arrangement to offset any of the costs of auto-enrolment.
- 1/4 have not thought about instructing external advisers to assist with auto-enrolment.
Tom Flanagan said: “For those companies which fail to deal with auto enrolment compliance adequately, the Pensions Regulator has a significant arsenal of statutory remedies at its disposal, including the ability to levy fines of up to £10,000 per day in certain circumstances for non-compliance.
“From the results of this survey it is clear that SMEs need further support when it comes to auto -enrolment. What is now called for, we believe, is a more streamlined and cost-effective tool to help smaller businesses to manage the transition, particularly in light of the recent Government statements about requiring the employer to meet the cost of advisors and consultants without being able to pass them on to the scheme or the employees.”
A video summarising the results can be viewed by clicking the following link.
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