Future pension problems for micro businesses

Compliance with new enrolment scheme questioned

THERE’S a problem looming for all micro firms – typically a building company employing two to 10 staff – and it comes in the form of the automatic enrolment pension scheme due to come into force in 2012. That’s according to the Federation of Small Businesses (FSB) which wants all micro businesses – those firms with fewer than 10 employees – to be exempt from automatically enrolling their staff into a pension scheme Responding to the consultation, ‘Government review of automatic enrolment’, the FSB said that the cost and time spent on administrative work would damage micro firms and that the pension schemes set up by government do not meet the needs of micro firms. The FSB believes the proposed changes are too complicated for small businesses to put in place, saying that small firms do not have the expertise they need to choose a pension scheme for their staff. For small and medium sized businesses, the FSB is instead calling for a default scheme to be set up in which everyone who is not currently saving should be enrolled. It should be based on the following principles to, according to the FSB:

• Deliver to all employees and the self-employed the opportunity to save for a pension at an annual charge of 0.3% or less;
• Use a national payment collection scheme, such as PAYE, to decrease the administrative burden on small businesses;
• Provide members with the option of investment in very low cost funds; and
• Keep contribution rates under constant review to identify whether changes are needed to achieve objectives.

The campaigning organisation that represents the interests of small businesses also said it was worried that the majority of small businesses and their employees were unaware that the country’s pension scheme was due to change in only two years time. It wants the government to raise awareness of the default pension scheme to ensure that – what it calls ‘this ticking time bomb’ – doesn’t hit small firms without warning. Mike Cherry, policy chairman, Federation of Small Businesses, said: “The FSB welcomes initiatives to help people save for their future in a pension but we are still concerned the new automatic enrolment pension scheme is going to be an administrative headache for small firms – particularly micro firms – and will cost them in time and money. “We know that small firms do not feel confident in choosing a pension scheme because of its complicated nature and we are thoroughly disappointed that five years on from the original proposals, the pensions industry has yet to come up with an efficient system to cater for micro firms. The FSB is calling on the government to make micro firms exempt from the automatic enrolment scheme and improve proposals for small firms.”