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MM leader: Stemming the tide of future auto-enrol failures

Natalie Holt website

As many advisers will testify, running a business is a serious undertaking, all-consuming in its demands on both time and money. So there will be a degree of empathy for the small and micro firms about to hit their staging dates, where auto-enrolment is one more burden they could do without.

The double digit opt-out rates that have been touted so far belie the scale of the challenge ahead. With Now: Pensions just last week announcing it would be introducing an auto-enrolment employer charge from next year, and with other providers likely to follow, the cost burden firms were already facing is only going to grow.

It is becoming clear that unless something is done, swathes of small firms are going to be left out in the cold. These are the firms that are beyond the realms of supersized HR departments, and often beyond the scope of those who can help with firms’ auto-enrolment responsibilities, the accountants and even the advisers.

And it is not just firms that stand to lose out by not getting on top of their auto-enrolment duties. We also have to consider those who by some quirk of the rules are outside of the auto-enrolment drag net, such as some women and those who are just starting out in the world of work and those closer to leaving it.

So what is the solution? There has been talk of operating a different model for small and micro businesses, where pension contributions would be collected through extra National Insurance payments. On that front though, the consensus seems to be that ship has sailed, and we are too far down the track on auto-enrolment to be devising different approaches depending on a firm’s size.

Another more radical proposal is to remove the complications for employers by simply opting everyone in – no assessing who qualifies, less messing around with payroll, auto-enrolment for all. A utopian ideal, but one unlikely to curry favour with the employers who would have to pay for it.

The Government’s rationale for rolling out auto-enrolment was that people are not saving enough for their retirement. The project will be deemed a failure if all we have to show for it at the end of it is a raft of smaller firms who have been fined, or at worst, gone bust as a result of non-compliance.

The real test for auto-enrolment starts now.

Natalie Holt is editor of Money Marketing – follow her on Twitter here


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There is one comment at the moment, we would love to hear your opinion too.

  1. As I posted elsewhere:

    I told you so, I told you so, I told you so. (And I’ll bet others did too).

    This whole benighted scheme was thought up with (presumably) the larger firms in view. They no doubt regarded it favourably as it meant that in most cases they could reduce their pension costs.

    As far as small and micro firms are concerned I strongly believe that the policymakers have no idea of the mind-set or circumstances of those who run these firms. As I have repeated till I am blue in the face, these organisations have enough to do taking care of the day job, without becoming an ex-officio government benefit agency.

    Many feel that they already fund for pensions via their employer and employee NI contributions. Many are just plain sick and tired of increasing government impositions and red tape into their business.

    I have two examples arising from enquires last year which I will repeat again as I think they illustrate the point.

    Case 1. An electrical contractor with 3 employees. He will now make them self-employed. He will rent them the equipment and vehicles and just take a cut from their receipts. In other words – a franchise operation.

    Case 2. A small printer with 2 employees. The owner was 63. He just decided to close the business – the employees will therefore be unemployed. Great result!

    As to TPR fining those who are in breach. What will this lead to for small firms? Insolvency and bankruptcy. The result – no pension and no jobs. What a great result.

    What the findings don’t clarify is that these small firms are not just unaware, they just don’t want to know – they are burying their heads in the sand.

    So what is to be done? What should have been done at outset. A grip should have been taken on the State Pension provision. Even if that means higher taxes. The UK now pays the most parsimonious State Pension in the OECD as measured by a percentage of average earnings. I’m not saying we should follow Greece – but there is a happy medium. Even the callous USA provides more generous retirement state benefits.

    What is needed is some practical and sensible thinking. Just wishing or threatening will not work. Harold Wilson tried something along the same lines called Selective Employment Tax. This contributed to higher unemployment and was dropped after a couple of years. AE is also an employment tax as far as many are concerned and in my view will also in the end lead to a rise in unemployment.

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