Nearly half of business owners without a workplace pension scheme (45%) are still unclear about their responsibilities with a quarter (25%) not confident their business can cope.
New FSB research has found that although smaller firms generally believe ‘auto-enrolment’ will be good for their staff and that workers should save for the future, many are still unclear what they need to do, when they need to do it, and how much it will cost . Three in four business owners (76%) said auto-enrolment pensions put too much pressure on businesses like theirs.
Over the next two years more than a million small and micro businesses will need to set up a workplace pension for their employees under the Government’s automatic enrolment rules. January sees the number of employers reaching their designated staging date – the date on which they need to start complying with auto-enrolment – rapidly ramp up with tens of thousands ‘staging’ each month in 2016 and 2017.
Although the majority of businesses (51%) feel confident they can meet the challenge of the new workplace pension, 45 per cent of businesses which have not yet complied are unclear what they need to do, and one in four (26%) do not know their staging date.
FSB also found businesses underestimating the costs of implementing auto-enrolment. On average, smaller businesses still to start the process, expect overall costs to be approximately £903. However, firms which have already introduced a workplace pension reported average overall costs of £1436, with one in five business (19%) reporting costs upwards of £2000 . Although costs are likely to be higher for firms with more than 50 employees, the findings suggest that the smallest business could be underestimating the costs too.
When asked how they accommodated the cost of setting up a workplace pension, 70 per cent of businesses which had already done so said they absorbed the expense into general operating costs or accepted lower profits. However, a fifth (21%) said they had frozen or reduced wages in order to cover the cost of auto-enrolment.
Those firms yet to start auto-enrolment said they were more likely to be planning a wage freeze or cuts in response, with 30 per cent expecting to do so. This suggests that as the rollout reaches greater numbers of businesses, this could act as a further drag on pay growth as employers look to manage increasing costs.
John Allan, FSB National Chairman, said: “Our message for small employers is auto-enrolment is coming and will affect your business – and the sooner you get to grips with what you need to do, the better off you will be.
“Most of the businesses which have already set up a work place pension told us they found the process fairly straightforward, but we know many remain concerned about their ability to cope. These businesses should feel reassured that there is plenty of information and support available to help them through this process, both through the FSB and from the Pensions Regulator.
“The Government must continue to monitor the roll out of auto-enrolment closely and take steps to lessen the burden on smaller businesses where possible. The move to postpone the planned increase in minimum employer contributions is welcome, as it recognises the extra challenges small firms face. Small business will also benefit from the Pension Regulator’s new step-by-step guide and information portal, which is now much better tailored to their needs.”
So far, approximately a quarter of FSB members are thought to have started to comply with their auto-enrolment duties, with the remaining set to stage over the next two years. When asked to reflect on their experience to date, firms which had started the process said the greatest challenge was understanding the rules and pinpointing exactly what they needed to do. After this the main challenges reported by FSB members were selecting a qualifying pension scheme and upgrading their payroll systems.
Among businesses yet to stage, the top three sources of information and support they expect to turn to are their accountants (56%), the FSB (37%) and the Pension Regulator website (33%).
FSB has established a workplace pension product available to its members which helps business owners set up an auto-enrolment pension scheme. Members also receive expert guidance to help them get to grips with the legislation and what it means for their business, free access to company pension scheme administration software, online support to help manage every aspect of compliance, a dedicated phone helpline, and flexible transfer and consolidation options for employers and employees.