In a bid to motivate SMEs to avoid unnecessary costs and get guaranteed access to the best advice and pension schemes, CIPD (a professional body for HR and people development) has urged businesses to begin preparations for auto-enrolment now.
Since its launch in 2012, pension auto-enrolment has so far been rolled out to larger firms. It demands every employer to sign-up eligible employees – those aged 22 and over (but under state pension age) who earn more than £9,940 per year and are not already in a workplace pension scheme.
While many large businesses across the country have been able to successfully adopt auto-enrolment over the last year, CIPD doesn’t think it will be “plain sailing” for small and medium businesses that are still struggling in the main due to challenges presented by limited resources, their own limited expertise as well as the cost of implementing the reforms.
A report published earlier this month has warned companies due to introduce auto-enrolment in 2014 to start preparation now if they are to overcome any challenges they face. The study also found that the number of employees choosing to opt-out of auto-enrolment was lower than 10%, while the average contributions from employees and employers was high at around 4% and 6% of employee salary respectively.
Charles Cotton, CIPD performance and reward adviser, said that large companies have established traditions of paying into employee pensions, while for small and medium businesses this will be their ‘first foray’ into the world of pensions. He added, “They are unlikely to have access to the same levels of expertise or support networks as their larger counterparts, and many fear it could be a costly exercise for their business.”
The research went on to conclude that SMEs were afraid they won’t be able to bear the administrative costs of adopting auto-enrolment as well as the cost of employer contributions. More than a quarter of the 400 private sector organisations surveyed said they will have to reduce pay growth while 22% thought the only way to cope with costs would be to freeze pay. Furthermore, almost 23% predicted a knock-on effect for other elements of the pay package such as cuts to bonuses or overtime.
However, not all is lost – CIPD spokesman, Charles Cotton went on to assert that SMEs won’t have to resort to such drastic measures if they start to plan and prepare now.
To support the 30,000 SMEs whose staging dates are due between April and July 2014, CIPD has published a guide offering advice on how businesses can take a more strategic approach to workplace pensions. However, if you don’t want to go at it alone and are struggling to cope with the pressures brought on by limited resources or expertise, please get in touch with us at Bradleys Accountants.