The Government has opened the door to the possibility of excluding small firms from automatic enrolment after inserted a clause in the Pensions Bill which allows policymakers to exempt firms if the reforms pose an “unreasonable” financial or legal risk, warns Legal & General.
Auto-enrolment has already been delayed until June 2015 for firms with fewer than 50 employees. The general election is set to take place in May 2015.
Legal & General pensions strategy director Adrian Boulding says the Pensions Bill includes a clause which could be used to scrap the auto-enrolment duty for small businesses.
Boulding was part of a three-man team which conducted a review of auto-enrolment on behalf of the Government in 2010.
He says: “When we reviewed auto-enrolment we were asked to consider whether small employers should be included or excluded.
“We made a very strong recommendation that they should be included, in particular because a number of employees will spend a large portion of their life working for a small employer and to exclude them from pensions would be seriously detrimental to their well being in retirement.
“We visited Nest as part of that review and we left convinced that the burden of using a pension scheme was in no way unreasonable for small companies.
“The Pensions Bill includes ‘Clause 34’, which enables the minister to exclude specific categories of employee. However, the power in the bill doesn’t say that it cannot be used to exclude small employers from the auto-enrolment duty.”
The DWP has also published a briefing paper which asks a series of questions about the potential application of Clause 34.
One of the questions the paper asks is: “Is the employer able to arrange membership of a scheme without unreasonable financial or legal risk?”
Boulding says: “This briefing paper particularly worries me. A minister could decide that for a small employer which is struggling to access financial advice, asking them to comply with auto-enrolment is unreasonable.
“This is a decision that could be made by any minister after this Bill has received Royal Assent, which is likely to be in November this year.
“Any decision like this should be debated in Parliament. For them now to sneak in a power that could allow the Government to exclude small employers is, in my view, inappropriate.”