With George Osborne’s Autumn Statement and the strike by public sector workers happening almost simultaneously, an announcement by Pensions Minister Steve Webb about auto-enrolment in pension schemes was never going to grab the headlines. However, the announcement does have significant implications for Britain’s small businesses.
The Government is currently implementing a plan for auto-enrolment in company pension schemes. It was originally intended that small businesses with fewer than 50 staff would need to comply with the legislation by April 2014, providing a pension for members of staff aged over 22 and earning more than £7,500 per year. However, with worries about the fragile nature of the economy and warnings of a double-dip recession from the OECD, small firms have now been given an extra year’s breathing space. They will not now be compelled to offer a pension scheme until May 2015. Estimates in the press put the savings to small firms at around £250 million.
Whilst the Pensions Minister insisted that the Government would press ahead with making sure that all employers offered a pension scheme – “There will be no exemptions” – many in the pensions industry were dismayed by news of the delay. Joanne Segars, chief executive of the National Association of Pension Funds, said: “We’re disappointed by the further delay for smaller firms. These reforms have been a decade in the making, and now is the time to press play, not pause.”
Employment solicitors also pointed out that some small businesses would seek to restrict staff numbers, making sure that they had 49 or fewer staff on the critical date – April 1st, 2012. Even if a business employs more staff after April 2012, as long as they were below 50 on the first of the month they will not have to comply with the legislation until May 2015.
Many small businesses will now breathe a sigh of relief and shelve plans for a pension scheme for an extra year. This is, of course, exactly what is upsetting the pensions industry, with small businesses already having the smallest proportion of staff members in pension schemes. As Joanne Segars said: “Small businesses are absolutely critical to making these reforms work, because their staff are the least likely to have a workplace pension.”
But is delaying the introduction of a pension scheme necessarily a good move for a small business? Yes, it will aid cash-flow, but the lack of a pension scheme is unlikely to help a business recruit the talented staff that are so important in difficult economic times. With the recent public sector strike, pensions have never been more in the news and potential employees are likely to be keenly aware that they need to start planning for retirement. This was reinforced by the Chancellor’s announcement that the state pension age will be pushed back to 67 from 2026.
If a small business is to remain competitive it needs to recruit and retain the best people and an attractive pension scheme is a vital part of that. Reassuringly for employers, the cost of implementing a scheme doesn’t have to irreparably damage the cash flow.
If you would like to discuss the possibility of setting up a pension scheme for your employees then please don’t hesitate to contact us. We’ll be happy to discuss the options with you and outline the likely costs.