Auto-enrolment into workplace pensions looks set to stunt SMEs growth

When it comes to complying with the auto-enrolment, small businesses and employees are concerned that pay rises could be impacted.

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Small businesses with less than 50 staff are next to be affected by the automatic enrolment legislation.  With more than 17,000 companies on the cusp of staging, the onset of automatic enrolment into a workplace pension means that 43% of those employing 1-5 staff are fearful of not being able to offer their staff pay rises and bonuses.  

Furthermore, 72% of employees who work in companies with less than 50 staff are concerned that their future pay rises may be affected as a result of putting in place a workplace pension.

The findings come from independent research  conducted by Enrolsme; a guided online automatic enrolment solution designed for small businesses.  

With the recent announcement of the increase in the minimum wage , employers, especially smaller businesses, are finding themselves under mounting pressure to meet legislation, at a time when the sector could do with a helping hand.   

Alarmingly, 21% of companies with 1 to 5 employees think that automatic enrolment could even put them out of business.  

As a result, 36% of businesses with 1 to 5 staff claim they would need to increase the cost of their services to accommodate automatic enrolment; another 48% are still unsure.

Matthew Mitten, director of Enrolsme, said: "These are worrying trends, given small businesses are the lifeblood of the economy. Employment in this sector may be affected with a third claiming they won’t be able to recruit more staff; and almost one fifth telling us they will have to reduce their investment plans.  

"However, even more concerning is the portion of small companies that believe automatic enrolment could see them going out of business all together. This was certainly not the goal of the legislation. These are tricky times for small business in the UK and more should be done to help support them.”

The survey also highlighted that nearly one third (31%) of employers still don't know what automatic enrolment is, increasing to 37% in companies with 5-10 staff.

The lack of awareness among employers is disappointing as the research also shows there is a real opportunity for small businesses to turn the cost of compliance into an opportunity to engage and reward their employees.  Over 90% of employees were in favour of automatic enrolment, with 86% of employees worrying about having enough money in retirement.

"The Pensions Regulator (TPR) does seem to be attempting to do more to raise the profile of automatic enrolment and workplace pensions through a media campaign," added Mitten. "But given the fact that around 1.5 million businesses are yet to comply, I still find the lack of awareness at this current time a concern. Businesses really need to see the value of automatic enrolment."

Of the 69% of businesses that were aware of automatic enrolment, 70% didn't know when their staging date was. This increases to 79% for those employing 1-5 staff.

Alan Ritchie, Head of Employer & Trustee Proposition at Standard Life, said "Given the huge wave of small businesses about to stage, this research shows how important it is to support small businesses through auto-enrolment.  Standard Life is delighted to be working in partnership with Enrolsme, helping make auto-enrolment easy for small businesses as well as giving them access to a high quality pension scheme their employees will value."


Other survey findings included:

Business
•    The survey asked employers (1 to 50 staff) to advise if they thought auto-enrolment would negatively affect their business.  They could choose as many, or as few as they liked:    
o    37% said pay rises or bonuses would  be affected
o    26% said they won’t be able to take on more staff
o    19% said they wouldn’t be able to invest in their business as they would have liked

Complying
•    It is good to note that 97% of respondents state they will comply with the legislation. Whilst only 3% advise they won't comply. Whilst this seems a relatively low figure, it equates to circa. 45,000 small businesses in total.
•    But, when it comes to the employees, 48% are either unsure, or they don't think their employer will even provide a workplace pension for them.

Planning
•    11% of the businesses surveyed stated they wouldn't plan and that they would leave staging until the very last minute - just before they had to, in order to avoid a fine. Given 1.5m businesses will stage before the end of 2018, this would equate to approximately 165,000 companies leaving it to the last minute.

For and against automatic enrolment
•    13% of employees questioned stated they would opt out of the automatic enrolment pension scheme when offered to them, yet 86% of employees worry about having enough money in retirement.
•    Nearly two thirds (65%) of employers are still not sure whether or not it is a good thing for their employees.
•    Conversely, 90% of employees are in favour of automatic enrolment.

Foster Denovo Enrolsme Limited is an appointed representative of Foster Denovo Limited, which is authorised and regulated by the Financial Conduct Authority.  

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