While pensions auto-enrolment has been successfully implemented by many large businesses across the country over the past year, there are concerns that the process for small and medium sized enterprises (SMEs) may not be such plain sailing. A report by the CIPD, the professional body for HR and people development, has shown that many SMEs set to adopt auto-enrolment next year need to begin preparations now in order to overcome the challenges presented by limited resources, expertise and the cost of implementing the reforms.
Since its launch in 2012, automatic enrolment has been adopted by most large firms across the UK, with positive results. According to new figures from the CIPD, the number of employees choosing to opt out of such schemes remains low (no more than 10 percent), while the average contributions from employees and employers are high at around 4 per cent and 6 per cent of employee salary respectively. The CIPD’s report, ‘Pensions automatic enrolment: the lessons for small and medium-sized employers’, based on a survey of over 399 private sector organisations, also found that only a small minority of large employers (9 per cent) have sought to recoup the cost of implementing auto-enrolment by limiting pay growth or cutting other elements of the pay package.
However, for employers due to automatically enrol their staff in Spring 2014, many of whom are small and medium sized enterprises, embracing the new system is likely to be more complicated. Many SMEs fear that they may struggle to absorb both the administrative costs incurred through adopting auto enrolment and the cost of employer contributions. Over a quarter (26 per cent) anticipate that they will need to reduce pay growth, while over a fifth (22 per cent) expect to have to freeze pay in order to absorb the costs associated with auto-enrolment. Furthermore, almost a quarter of SMEs (23 per cent) predict a knock-on effect for other elements of the pay package such as cuts to bonuses or overtime. However, the CIPD believes that if businesses start planning for the adoption of auto enrolment now, they can avoid having to resort to such drastic measures.
CIPD performance and reward adviser, Charles Cotton, said: “While large companies tend to have long established traditions of paying in to employee pensions, for many SMEs this is their first foray into the world of pensions. They are unlikely to have access to the same levels of expertise or support networks as their larger counterparts and, as our survey reveals, many fear that it could be a costly exercise for their business.
“However, with early planning and preparation SMEs can overcome any challenges and realise the opportunity that auto-enrolment offers. With some 30,000 employers due to go through the auto-enrolment process between April and July 2014, demand for professional advice and guidance from pension advisers and providers is going to be high. We would therefore urge SMEs to act now to guarantee access to the best advice, to negotiate the best rates and secure the most appropriate pension scheme for their business.”
To support SMEs with staging dates coming up next year, the CIPD has published a guide offering advice on how companies can take a more strategic approach to workplace pensions by ensuring that auto-enrolment is aligned to their organisation’s business strategy, culture and brand. The guide also demonstrates how auto-enrolment schemes can be effectively integrated into existing HR and reward strategies, as well as meeting the needs of an increasingly diverse workforce.
