With the final staging dates just around the corner, many smaller companies are lacking the support they need to launch their auto-enrolment pension schemes
Since 2012, when the largest employers began to enrol employees in auto-enrolment workplace pension schemes, more than 6.4 million people have joined such schemes. Opt-out rates have been lower than expected at around 10%. Perhaps one of the key reasons for the scheme’s success has been its rollout: a staged approach to auto-enrolment was agreed to by the government, meaning that those employers with the fewest employees had the longer period of time to put in place a compliant scheme. The staging dates for businesses with the least number of employees began in 2016 and will continue through the first half of 2017.
But despite this phased rollout, the latest government figures show that many smaller businesses are struggling to auto-enrol staff onto a compliant workplace pension by their allocated staging date. The scheme put in place must meet complex compliance specifications. And, for many managing directors and business owners, auto-enrolment is seen as yet another regulatory burden, coming at a time when they are working to continue to drive economic growth in the face of uncertainty and rising costs.
This is particularly significant given the weighty sanctions placed on small businesses that fail to meet their statutory deadline dates for enrolling staff onto workplace pension schemes. In the last three months of 2016, more than 10,000 fines and other sanctions were issued to smaller businesses whose deadline or staging date had not been met. Additionally, thousands of smaller and micro businesses that have ignored penalty notices issued to them for not meeting their staging date are now being issued with county court judgements (CCJs). They will then have 30 days within which to pay the accumulated fines. If they don’t, the CCJ will be entered on their credit record, remaining there for six years and seriously affecting their ability to borrow money in the future.
As well as issuing penalty fine notices, the pensions regulator has powers to demand information or issue a warrant to search and inspect premises. To date, no appeal against a penalty notice has been won at tribunal, with no business having been able to demonstrate that they had a reasonable excuse for failing to comply.
Smaller businesses face specific operational pressures. They are focused on building their companies, on innovation and on creating the jobs which drive economic growth. Many have complex employee contract arrangements – particularly in certain sectors, such as food and drink – with a high proportion of temporary employees, part-time workers or seasonal staff, for example.
Whilst smaller firms take their statutory obligations – and their duty of care to their employees – seriously, they are often the least able to bear the time and cost of doing so. Despite a willingness to do the right thing for their employees, many smaller businesses do not have the resources in-house to set up a compliant scheme and enrol all their staff in time for their staging date. Most employers having to auto-enrol their staff on a compliant pension scheme will not have run occupational pensions before. And those that do have a workplace pension in place for their employees may find they need to make changes to it to ensure it complies with the new laws.
While these factors mean auto-enrolment is proving to be a particularly thorny matter for many, there is external advice and assistance available. However, anecdotal evidence suggests that some businesses may be paying a high fee to a pensions company to sort the matter out for them.
Take the case of Andrew Mackay, owner of the Caithness Collection hotel group, which employs 115 staff. The company’s staging date for pension auto-enrolment was October 1 2016. Mackay, a successful and busy business owner, had left it quite late to organise a workplace pension scheme by his deadline. As many would do, he contacted a well-known brand with which he was familiar and he trusted for a quote to set up a compliant workplace pension scheme. The company quoted almost £12,000 excluding VAT to set up the initial scheme, with a further annual cost of £3,000 plus VAT.
Businesses like Mackay’s should not have to pay these types of costs. It is highly possible to have a compliant scheme set up for a business employing 115 staff, quickly and easily for not much over £1,000 by a professional provider, with no annual consultancy fees thereafter. So whatever your size, there’s no need to be overwhelmed and there’s plenty of help out there to lead you in the right direction.
This article comes courtesy of FSB, the UK business organisation representing small and medium-sized businesses whose new resource can help assist small businesses with their workplace pensions auto-enrolment.