Recommendations that all UK businesses should automatically enrol staff into a company pension scheme from 2012 will, if adopted, impose a damaging administrative and cost burden on small companies, an employers’'body has warned.
The warning came as Steve Webb, the pensions minister, was expected to give the go ahead to the findings of a review, due to be published later today, on the precise scope of pension automatic enrolment. The review was carried out by the Department for Work and Pensions and was started in June.
The principle of automatic enrolment was established in the Pension Act 2008, which set out reforms intended to make saving for retirement the norm among employees. The idea was that all employers had to provide an adequate pension scheme for eligible workers.
If a company scheme was not provided, staff would instead have to be enrolled automatically in a new state scheme for low-to-moderate earners, the National Employment Savings Trust, which is now expected to start operating as planned in 2012.
The review will also recommend that automatic enrolment go ahead with no exemption for small employers, however, although businesses will have three months grace before having to enrol new staff in an attempt to ease the burden on firms employing large numbers of temporary or seasonal workers. But staff will be able to opt in from the start of their employment contract if they choose to do so.
Automatic enrolment will likewise only apply to personnel earning more than £7,500 per year rather than the originally proposed £5,035. Staff will be able to join the scheme on a voluntary basis, however, and receive an employer’s contributions on earnings below the £7,500 threshold.
It will also be made easier for employers to certify that their existing pension scheme is at least as good as the pension offered by NEST in a bid to reduce the risk of companies abandoning their existing provision to go with one that requires them to contribute only 3% of staff pay.
But John Walker, national chairman of the Federation of Small Business, told the BBC that the revised plan would hit small companies hardest. "The FSB has constantly warned that the cost and time spent on administrative work will damage micro firms – those with 10 employees or less – and that the pension schemes set up by government do not meet their needs," he said.
David Ferris, a senior consultant at pension advisors Punter Southall, agreed, pointing out that including small businesses in the scheme would only work if the process was kept simple.
"It will come down to the success of NEST. Can that organisation make hundreds of thousands of companies interact successfully with their online scheme by making it straightforward?" he said.