Employers feeling the cost of auto-enrolment

Report from the CIPD reveals that two-thirds of employees are now enrolled in a workplace pension scheme but 70% of employers have reported an impact on the company coffers

Employers feeling the cost of auto-enrolment

Many SMEs were left squirming back in 2012 when the government announced that all employers will be obliged to enrol their workers on a workplace pension scheme. While the UK’s smallest companies have had ample time to prepare for auto-enrolment, a new survey from the Chartered Institute of Personnel and Development (CIPD) might give them further cause for concern.

According to the CIPD’s report, Employee Outlook: Focus on employee attitudes to pay and pensions, 66% of employees are now saving through a workplace pension scheme, up from 45% in 2010. However, 70% of employers that have gone through auto-enrolment have noted the financial impact on their companies. When asked how they had reacted to the increased costs of auto-enrolment, 21% of employers said they’d taken lower profits and absorbed the costs, 15% are paying the statutory minimum pension contributions for automatically enrolled staff, 10% said they are reducing or stopping wage growth and a further 10% are reducing other elements of pay.

Charles Cotton, performance and reward adviser at the CIPD, said: “Many pension commentators have suggested that workers and firms aren’t paying in enough to their workplace defined contribution schemes but this research encouragingly shows that most employers and employees are contributing well in excess of the minimum rates required under automatic enrolment. However, employers are clearly taking a hit and this is likely to become more of a problem as the introduction of the national living wage in April and the apprenticeship levy in 2017 edge ever closer.”

The CIPD urged employers to look at ways to improve their productivity, which will allow them to increase pension contributions without cutting back on other parts of payroll. The report showed that, among the 32% of employers that increased salaries by more than 2% in 2015, 28% did so through productivity improvements. However, it went on to reveal that just 12% of employers have taken steps to review working practices and job design in order to increase performance, with this figure dropping to 8% for small businesses.

“While many ways of boosting performance may now only be marginal, especially in sectors subject to legal requirements, if employers can make enough small changes then they can really boost their productivity,” Cotton added. “What all employers need to do is review the way their organisation operates and identify the areas where improvements can be made before deciding the task is too great.”

Ultimately there’s no escaping auto-enrolment so it’s best to get prepared ahead of time.

Adam Pescod
Adam Pescod

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