By Maximilian Clarke

Small to medium sized enterprises (SMEs) are being urged to act now to try to soften the imminent financial blow inflicted by new Government pension legislation.

During the economic slump smaller enterprises have been hit hard by a combination of lack of cash from the banks, price pressure from customers and shrinking order books.

The predictable response from beleaguered business owners has been to cut costs and make their operations leaner. Now experts warn that firms’ margins are about to be squeezed further by the looming prospect of “auto-enrolment” and subsequent compulsory employer contributions.

“What we are talking about is a long-debated Government scheme whereby every UK employer will be legally obliged not only to provide access to a pension scheme, but also to pay contributions of around 3 per cent of payroll into it,” said Michael Harvey, senior actuarial consultant at BBS Consultants & Actuaries which specialises in providing expert pensions advice to the small business sector.

According to BBS’s own research as many as three quarters of UK SMEs are unprepared for auto-enrolment, which will be introduced in 2012 for larger companies and, after that, phased in for smaller enterprises.

And, whilst welcoming the move to encourage people to save for old age, Mr Harvey acknowledged that the timing of such a scheme could scarcely be worse, especially for the hard-hit SME sector.

“No business will be exempt from this,” he said. “Starting in 2012 businesses will find they must not only go through the hassle of providing access to a pension scheme and enrolling all of their staff, but they will also be compelled to pay contributions of eventually 3%.

“This is no small amount for SMEs who have struggled to stay afloat over the last few years. At a time when the Government is looking to the private sector to lead the economic recovery and offer increased employment opportunities, auto-enrolment and the compulsory contribution requirements may have the opposite effect, leaving some SMEs with no choice but to impose pay freezes or to further cut jobs.”

He added: “Business owners must not adopt a ‘head in the sand’ approach to this. Instead we are urging our business clients to face this issue head-on and look at ways of preparing for auto-enrolment and compulsory contributions now, rather than leaving it until the last minute when their options may be more limited.”

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