By Daniel Hunter
A report which shows that fewer employees are opting out of their workplace pension is yet another wake-up call for small to medium-sized enterprises (SMEs) who are underestimating the huge administrative task that lies ahead with auto-enrolment — says a leading pensions lawyer.
In a recent survey, the National Employment Savings Trust (Nest) found that less than one in 10 (9%) of employees chose to leave pension schemes after being automatically enrolled. This figure is far lower than the expected figure with the Government predicting before the law was introduced last year that a third might decide to leave.
Auto-enrolment will mean that all UK employers must automatically place their entire workforce into a qualifying pension arrangement. All employers must contribute to that pension arrangement and must monitor and keep records of their workforce’s membership of the scheme.
The laws came into effect for the UK’s largest businesses last year and from April 2014, firms with a PAYE scheme size of between 160 and 249 will need to be ready. Firms with fewer staff members will be required to comply with the rules by a particular ‘staging date’ according to their size up until 2018.
Nigel Bolton, pensions partner of Irwin Mitchell, said: “Although it is good news that more people are saving for their retirement, these figures will signal tough times ahead for smaller firms.
“Although SMEs have not yet reached their staging date for implementing these regulations, if the retention figures are replicated then the ongoing administrative task of managing the scheme for employees will be much greater than they thought.
“Our own recent study into the impact of auto-enrolment on SMEs found that many smaller firms had not considered many of the key issues in relation to the new rules. Indeed, our research suggests that nearly 40% of SMEs state that the pension scheme which they currently operate does not (or may not) comply with automatic enrolment requirements and a similar number say that their current payroll system is not compliant with automatic enrolment.
"Meanwhile, when asked about what they consider to be the biggest challenges to introducing auto enrolment, nearly 40% quoted a combination of cost and back office admin."
“Clearly it is not just about businesses getting their systems in place in advance of their staging date, in order to cope with greater demand, it is vitally important that the systems are effective, robust and scaleable.”
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