Challenges for Small Business with Auto Enrolment
Auto enrolment is set to ramp up as the country heads for complete auto enrolment of all employers by 2018. So far only 3% of employers have needed to comply but in the next few years the outstanding 97% will be implicated. There are obviously challenges ahead as resources become stretched both outside and within smaller businesses.
In 2015 45,000 employers are set to enrol and in 2016 it will be 45,000 employers per month. So far it seems that medium sized businesses have coped well however some have struggled to find a pension provider that will enrol all of the workforce and some businesses turned down completely by a private pension provider. As with all businesses return on investment is essential and it seems that some pension providers do not think that providing a pension scheme to a small to medium sized business is worthwhile. Others will disagree but may add hefty ongoing annual charges in order to ensure they make a profit. This leaves the smaller business in a difficult situation with the choice of pension schemes available dramatically reduced.
Research has shown that medium sized businesses have so far taken less time to prepare for auto enrolment and have had reduced implementation costs than the larger businesses who have had to comply since October 2012.
Many small and micro businesses have no experience of implementing a pension and do not have an active scheme in place. Many did not bother offering a stakeholder pension despite the fact that having 5+ employees this was required. Auto enrolment, however, can not be ignored. It seems, that awareness of the process is quite high, but action is required and early planning essential to comply with the staging date and avoid the hefty fines.
Demand for help with auto enrolment remains quite high. A high percentage of businesses will turn to their accountant. However, many are not able to offer any support. The IFA industry on the other hand has geared up to provide advice and guidance, but often will charge high fees to implement the process.
In 2014 the opt out rate for employees was running at 8% which is relatively low. Research shows that only 5% of younger workers are opting out whilst 28% of older workers are doing so. Affordability seems to be the key with these older workers as well as having an alternative means of saving for their pension.
It is thought that overall opt out rates is because of good communication processes offered by the larger employers that have had to comply so far. However the medium and smaller businesses that are now being affected do not have the huge resources available to provide communication processes such as seminars and workshops. Communication about the process is essential so that employees fully understand the implications of auto enrolment and saving for future retirement. The possible lack of communication resources may impact negatively on opt out rates in future, time will tell. There are a range of communication methods that smaller businesses could use including team meetings and newsletters. Ideally one to one meetings is best, but is obviously time consuming and may be difficult timewise.
Sandra is and independent HR with twenty years experience in HR management. Sandra provides HR, employment law and auto enrolment support to small businesses across the UK and is passionate about delivering a high quality service on the phone, by email and on site.