By Claire West

Automatic enrolment into a pension scheme, due to come into force in 2012, will cost small businesses £2,550, the Federation of Small Businesses (FSB) has warned, but fears that the true administrative costs could be extortionate.

From 2017, all firms and their staff will have to be fully enrolled into a pension scheme and business owners will have to pay a minimum of three per cent of an employee’s salary into a pension.

As a result, the average small firm — those with four employees earning an average salary of £25,000 — will pay at least an extra £2,550 per year in administration and pension costs.

The Government has said that it will cost micro firms with up to four employees £46 per person in administration. The FSB believes this is a gross underestimation and is urging the Government to publish an impact assessment immediately.

The FSB has been calling on the Government to make micro firms exempt from the automatic enrolment scheme, as it will cost them in both time and money and is extremely disappointed they have ignored these calls.

While measures have been put in place to make the administrative burden easier for small businesses, the FSB is concerned that they do not go far enough and that the Pensions Regulator — the body that supervises the pensions industry — will apply a heavy hand on small firms.

The FSB calls for the Pensions Regulator to adopt a light handed approach when the rules are put in place before any financial penalties are enforced, and to clearly and effectively communicate to small businesses how the new regulations will affect them and what will be required.

Mike Cherry, Policy Chairman, Federation of Small Businesses, said:

“It is vital that everyone is able to save for their future but the automatic enrolment scheme is going to cost the smallest businesses dear. While Government has put measures in place to make the enrolment process easier for micro firms, it is going to cost them at least an extra £2,550 a year. The true administrative costs, however, are unknown and could be extortionate. We are calling on the Government to publish a proper impact assessment immediately to shed the true light on just how much these changes will cost small businesses.”