Small firms worried over pension reform costs

More than half of smaller firms believe that the financial impact of new statutory rules governing pension schemes will “add significantly to costs”, new research shows.

The 2010 Smaller Firms’ Pensions Survey, from the Association of Consulting Actuaries (ACA), gathered responses from 404 smaller employers with 250 or fewer employees. It found that only one in five of the country’s smaller employers have begun to consider the financial impact of new statutory rules from 2014 requiring them to auto-enrol millions of extra employees, who at present have not joined schemes, into workplace pension schemes.

Over half (53%) said the reforms will “add significantly to costs” and 29% said they are “likely” to level-down to meet the additional cost of newly pensioned employees by reducing future pension contributions into existing and new schemes.

There are more than 1.2 million smaller firms, with one employee or more, in the UK and all will be required to auto-enrol their employees into a “qualifying workplace pension scheme” between 2014 and early 2016 under the Government’s current pension reforms. And although there was a slim majority (54%) of respondents in support of auto-enrolment, the report also found that small firms expect 35% of employees to “opt out” of the new pensions.

Half of companies said they thought firms employing fewer than five people should be exempt from the new rules, while 61% believed people should have to work for a firm for three months before they were auto-enrolled into its pension scheme.

Stuart Southall, ACA chairman, said: “The success of the auto-enrolment policy in smaller firms is likely to hinge on how well the economy recovers over the next few years. The opt-out rates expected are much higher than we found amongst larger organisations – 35% as against 15%. The ‘cost of pensions’ to both employees and employers is the ‘big issue’ that has prevented the extension of pension provision to date in the sector. Whilst auto-enrolment may break the mould, if we are all still paying higher taxes to recover over-spending, it’s difficult to see how this will not bump up opt-out rates.”

However, he added: “Much remains to be done in educating the wider public about the importance of private pension saving to boost retirement incomes and the need to make room for higher levels of savings in spending plans.”

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