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Could small firms be excluded from auto-enrolment?


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.”



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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Law of unintended consequences alert! I’m no lover of AE in its current form but you then create a cliff edge situation where taking on an extra employee when the headcount is 50 creates a massive CBA dilemma.

    The same situation already exists in France.

  2. The majority of employers in the UK are SMEs. If AE is not introduced it will fail to achieve what it set out to do, and more people will not take responsibility for their own retirement much like RDR. 🙂

  3. So let me ge this right, nearly 25% of the UK work force work for firms with less than 10 members of staff. The UK is also heading for pension meltdown if the government doesn’t seriously do something to force people to save for their old age.

    It is calculated by major insurance companies that 60% of the UK working population have a serious shortfall at normal retirement age.

    So how allowing small firms to opt out of this policy are we going to sort the retirement shortfall. This may be an unpleasent bullet but surely we need some strong leadership and go ahead with this change with no further meddling.

  4. Further to Sam’s comment, if the reverse was to happen, i.e. an employer reduces it’s workforce after AE has begun, can they then choose to opt out of AE?

  5. Scaremongering at its worst. Shame on L&G.

    The DWP paper makes it clear what this change is designed to achieve. L&G should be working with DWP during the consultation period to make sure the final clause does what it says on the tin, rather than creating more damaging noise.

  6. Oh for crying out loud MAKE YOUR MINDS UP – all this indecision is not helping ANYone. Typical government – couldn’t run a bath

  7. Let’s wipe away the crocodile tears! For the small firms that I advise this is really great news. I too (as many of you) was an employer with less than 50. From what I have seen I think it is fair to say that generally small firms treat their employees better than bigger firms. They certainly seem to have staff which are longer serving. The impost of AE was a very unwelcome potential impost.
    The firms I deal with do provide pensions for their employees – on a single premium basis, so that they can adjust contributions to the fortunes of the firm. As it happens they (in the main) pay over the AE rate anyway. However AE does not and will not recognise single premiums. So this exclusion will no doubt be greeted with great relief from both employers and employees in SMEs.

  8. Waken up guys. This isn’t about excluding small firms from AE.

    They’re the reason it was introduced. And it will still hit them.

    Read the DWP paper. Not L&G’s propaganda.

  9. Gareth E K Smith 2nd July 2013 at 12:45 pm

    The reality is many small SME’s are cash conscious. The question I have been asked most is “how do I get around it”.

    It will result in more and more Part Time employees on zero hours contract, let face facts and we are talking people on minimum wage who are the most affected why would an employer employ someone full time on minimum wage pay employers NI, NEST when that employer could employ two Part Time under NI and NEST thresholds. The employee isn’t bothered because that wage get’s topped up by tax credits.
    This is what is happening now why unemployment is reducing and but we are not getting growth.

    The principle of forcing employers in this global age to pay more to employ people is crazy, employers do not pay there employees rent and mortgages so why should they there pensions.

    What should happen is that the State Pension put back a few more years but massively increased after all on a BBC report today people are not living as long as was predicted.

  10. RE Gareth Smith:

    People not living as long as predicted !!!! Lies peddled by HMG to justify robbing people of their pensions.

    In that case we can all retire at 55 on full state pension. Dream On !!!!

  11. Dick Sprinkler 3rd July 2013 at 2:16 pm

    I agree with Harry for once

    AE for SMEs = Another ill thought out government sponsored train wreck much as every other ‘new idea’ brought about by governmental and regulatory interference – it just doesnt work.

  12. What was wrong with SERPS/S2P?

  13. Terence O'Halloran 4th July 2013 at 5:03 pm

    Response to Money Marketing 2nd July: Auto Enrolment

    It is not a matter of “could” small firms be excluded from Auto Enrolment it is rather that they SHOULD BE unless Auto Enrolment replaces National Insurance on a 1% for 1% basis. And that is both employer and employee.

    It is irresponsible to take money out of employer and employee’s pockets at a time of austerity on the premise that “millions are not saving for their retirement.” What on earth do Politicians think National Insurance is paid for?

    National Insurance contributions are just that, insurance contributions paid perforce by employer and employee and the pensions element represents approximately 18% of band earnings to buy £144 per week on a pay-as-you-go basis.

    The only way that Auto Enrolment can be justified, whatever the size of the underlying employee base is for National Insurance to be reduced by 1% for every 1% of Auto Enrolment cost. That is the way I designed it in 1999 when I presented it to the Government Actuarial Department and Pensions Ministers at the time and that is the way it should be implemented.

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