In a three-year period from mid-2014, over one million SMEs in the UK will have to offer their employees the opportunity to automatically enrol in a workplace pension scheme. Some 750,000 of those SMEs have four or fewer employees.
The self-employed or people who are sole directors of their own company won’t be enrolled automatically . But every employee – even where there is just one employee – must be give the pension opportunity.
According to the Association of Consulting Actuaries (ACA), most small firms are unprepared or unclear about what to do. A 2012 survey by the ACA of small businesses found that only 28% have budgeted for the cost of auto-enrolling their employees into a workplace pension scheme. Fewer than 1 in 5 firms are aware of the detail of the auto-enrolment regulatory regime, guidance and employers’ duties. Of those that are aware of the regulatory regime, 53% found the rules ‘complex’ and 23% ‘very complex’.
There is certainly a need for retirement provision for employees – and employers – in SMEs. Around 20% of the UK population face large income drops when they retire, according to a report from the Institute of Fiscal Studies. The pension industry has probably suffered from a general impression that it doesn’t offer customers a great deal. But all types of saving in the UK is very low.
“Yes, it is right that pension provision should be available to employees in even the smallest firms, but we do question whether the auto-enrolment rules are overly complex for businesses of this size and whether the strains of the staging timetable by 2015/18 look too rigorous, says ACA Chairman Andrew Vaughan. “We also wonder whether the pensions industry has fully taken on board how it will market appropriate pension schemes to so many SMEs, the vast majority of which have no provision in place at all at present.“
The auto-enrolment requirements are being enforced gradually. In October 2012, businesses with 250 employees or more had to ensure they provided workplace pensions that met the requirements of the scheme. By April 2015, companies with 50 to 249 employees will have to follow suit. Auto-enrolment for firms with under 50 employees starts in June 2015.
There is some guidance out there. The government offers advice.
There is also some online guidance available from the National Association of Pension Funds site:
And some of the companies who hope to win business are starting to roll-out pension advice and products. Providers such as the Danish company Now Pension are coming up with offerings designed to meet the opportunity.
“Let us also hope the economic situation and the public’s perception of the benefits of pension savings will improve during the staging period, otherwise the feedback from our survey suggests that concerns over both cost and disillusionment with pensions may prompt high opt-out rates,” says Andrew Vaughan of the ACA.