04 Sep

SMEs Getting Buried At Bottom Of A “Pensions Avalanche”


A recent white paper from Principal looked at how small & medium enterprises are struggling to cope with a wave of pensions reforms. We’ve looked through the white paper and want to use this blog post to answer for you the question of whether or not these pensions reforms are too many too soon.

In the year to May 31 2009 there were 30 papers on pension policy released by organisations such at The Pension’s Regulator, The Pension Protection Fund, The European Insurance and Occupational Pensions Authority, the Financial Conduct Authority and the UK Government.

Five years later and that figure had risen to 108 – an increase of 260%.

These figures from EFinancial News show quite clearly how activity in the pensions world has changed in the last five years. With pension reform after pension reform, those involved in the industry are seeing a huge increase in the amount of paperwork day-to-day, while even businesses not involved in the pensions industry are feeling the effects. While some businesses will cope just fine, it’s feared that small businesses could be crippled by the extra workload.


Auto Enrolment

The biggest reform in this time has been the new set of pension legislation in October 2012 which required all businesses to auto enrol their staff into a pension scheme, albeit with the deadlines for doing so far down the road for the smallest businesses.

A recent white paper from Principal found that more than half of SMEs weren’t even aware of their auto enrolment staging date – the deadline for complying – and pointed out that SMEs could be severely underestimating the time and resources needed for auto enrolment.

The white paper said: “Whilst many SME employers are aware of the new rules, the fact that less than half of theses employers have not taken the ‘first step’ of understanding when the new laws will impact their business illustrates that employers are underestimating the time required to ensure that they are fully prepared for the new rules.”

The process of auto enrolment has been estimated to take up as many as 103 staff days to implement in-house, which has seen many SMEs look for auto enrolment helpinstead, finding that this has actually worked out cheaper than trying to do it themselves.

Of course this is not an ideal solution and the cost to small businesses of complying with auto enrolment is a very real one. Should a business fail to register in time, that cost could climb even higher – and quickly! The fines for non-compliance begin with a £400 fixed rate before daily fines which range from £50 to £10,000 depending on the size of the business.

It’s difficult enough for small businesses to meet their auto enrolment expectations, but it doesn’t help when there are other pension reforms to keep in mind at the same time.

Pensions were again the talk of the Queen’s Speech this June as further pensions reforms were introduced, while George Osborne confirmed other changes in July, from a rise in the personal pension age to the creation of super annuities and more.

After years of very little change to the pensions landscape, 2014 is a time of action, action, action, and possible too much of it at once. A spokesperson for the Department for Work and Pensions commented that: “We have been unashamedly reforming the pension system, and it’s the right thing to do to consult on those reforms with stakeholders. Once these reforms have gone through, we will have created a new landscape that we hope will stay in place for some time."

That new landscape will be better for savers and pensioners, with the majority of the reforms readily welcomed. What is questionable and what could harm SMEs, however, is the speed at which all these reforms are being pushed through.


Photo credit goes to gruntzooki

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