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‘Catch us if you can’: Small firms to dodge auto-enrolment duties

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Research from the Institute of Directors has found evidence that some small firms plan not to comply with their automatic enrolment duties.

Auto-enrolment began in September last year, with the UK’s largest employers legally required to offer staff a pension scheme which meets the Government’s minimum standards.

The reforms will be phased-in, with small companies not required to offer staff a pension until April 2017. Minimum employer contributions will eventually rise to 3 per cent of earnings in October 2018.

The Institute of Directors has surveyed 1,327 of its members to gauge how employers are responding to the changes.

The IoD says while levels of awareness and preparation are “broadly positive”, it has uncovered evidence that some smaller employers have no intention of complying with the new requirements.

One respondent says: “We plan to make every effort to avoid this piece of legislation, designed solely to allow the Government to steal more money.”

Another says: “We will not be spending any money doing something that we do not want to do. Catch us if you can.”

Both comments were from employers with fewer than 50 employees.

The IoD says: “This is new for 2013; suggestions of wilful non-compliance with the new employer duties were absent in 2011, making this a worrying development.

“We cannot infer from these comments that such attitudes will be widespread, but the research gives a sense that as employers – and particularly small employers – start to comprehend the enormity of the task in front of them, hostility to automatic enrolment might increase.”

The research also looked at how employers plan to pay for the extra cost of automatically enrolling workers into a pension scheme.

Some 42 per cent of respondents say they will use profits to meet the cost of complying with the new rules, while 24 per cent are planning to freeze or cut salaries. 

Just 3 per cent of employers will make redundancies in order to compensate for the cost of auto-enrolment.

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. In my view (and experience) this is just the tip of the iceberg for firms with fewer than 50 employees. I am an IOD member and have seen the report. Who can blame these respondents? The quoted comments strike a chord. It is just another impost on employers. They are already unpaid tax collectors and have burdensome additional employment conditions – NI. Elf & Safety, Employment Legislation and so forth. These are the real entrepreneurs and what encouragement do they get?

    Just look at the stats. According to Govt stats there are around 11.5 million people employed in firms that have between o to 50 employees (0 = sole traders with no employees). This accounts for about half of all private sector employees. How many of these ducked Stakeholder? So the powers that be will impose sanctions. What then these firms will go under and those whom they employ will be out of work. Great idea.

    AE is not a good idea for small firms. If you were in a job that paid less than £30k per year, had a mortgage and a couple of kids; credit card debts and monthly payments on the car. You are just scraping by – then along come the do gooders and swipe more money and reduce your disposable income. In addition you probably haven’t had a rise for 3 or 4 years and now you employer is hardly likely to contemplate one.

    Why AE? If we need better pension provision (and we probably do) then why doesn’t our government (any of them) have the courage of their convictions? Raise taxes, ring fence receipts over the long term and provide a proper State Pension. After all if you tot up the huge amount already being raised by NI most people fondly believe that this is used to fund their pensions and healthcare. No one admits that they are being swindled.

    How much better off will a 45+ year old be on the average wage when he finally gets to retirement, after investing in some sclerotic default fund for 20 years. What is the opportunity cost? How long will he live to enjoy it? Remember that in the main it is the better off who have the longest lifespan.

  2. Can you imagine the public outcry when a small employer is fined for non compliance, goes out of business and puts staff on the dole queue!

    The Government will claim AE is a success as larger employers will comply but the bottom line is that the original objective of it all to increase pension saving among workers at small businesses will fail.

  3. I am with Harry on this issue. This is the tip of the iceberg.

    I recently spoke to an accountant who deals exclusively with small employers and he openly says his clients will be avoiding the new rules at all costs. Compliance is not an option seemed to be the attitude. I admit to being surprised at the approach but from these comments & survey I am not alone.

  4. No doubt, bearing in mind how ruthlessly stakeholder requirements were enforced, that most small firms will be quaking in their boots……

  5. Every enquiry/conversation I have had with my Small Business running clients has opened with how can we avoid it as we simply can’t afford it.

    Those conversations have gone on to – if we can’t avoid it we will have to make redundancies (in the plural).

  6. We now have a 15% employer government imposed surcharge on every new employee taken on;

    11% NI plus 3% NEST

    No wonder growth is stalling and youth unemplyment so high.

    We must stop treating businesses as an unpaid wing of social services.

    Taxes on employment and wealth creation must be cut dramatically.

  7. For years now the government has been effectively destroying faith in pensions and concentrating too hard on stimulating the housing market which is now resulted in generations of workers burdened with so much debt that they don’t save for retirement.

    This problem is so bad that we need auto enrolment to work otherwise the tax bills in the future will be astronomic and make the 3% employer’s charge look like a drop in the ocean.

    In principle this idea is a good one and has worked for many years in Australia with no real problems and will probably lead to a more rational approach to pension planning.

    Once auto enrolment is fully working I can see that a government in the future will be tempted to merge NI in with general taxation to simplify the system.

    The adviser community needs to educate employers that there are in fact some savings for employers in auto enrolment particularly as pension contributions do not attract NI – salary sacrifice is going to be much needed advice to employers.

    The only real problem with this legislation as I can see it is the new term eligible worker which will mean that some agency staff working as self-employed will need to be auto enrolled. If you think we have heard screaming from employers on normal PAYE staff wait to you get agency and self-employed working on personal services contracts.

  8. I don’t take the ‘wilful non-compliance’ stories too seriously at this stage.

    The situation is radically different from Stakeholder and a designation certificate stuck on the wall won’t do the job this time around.

    I disagree with Harry on this one.

    A flat rate State Pension topped up by AE is a good plan as long as the present means tested benefits regime is also eliminated such that every penny you save you benefit from.

    If you’ve got to middle age without making any provision for retirement at all it’s going to be tough that’s for sure but at least this way everyone else won’t have to pay for that sort of fecklessness in the future.

  9. Lee Rawding – these benfits won’t have their means testing eliminated in the long term. This is a change in the law to claw back benefits, not provide more. It is a long term strategy and when the tipping point comes, means testing will be introduced.

  10. GXR – That’s my point.

    The present State system doesn’t exactly shower riches but it does make those who have modest retirement savings think again as in a lot of cases, had they not bothered at all, they could have had their pension topped up by the State instead.

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