Enrolsme’s Matthew Mitten offers his predictions for 2015 when it comes to small businesses and automatic enrolment.
With 2015 now here, increasing numbers of small and medium sized businesses (SMEs) are getting closer to their automatic enrolment staging date, where they will be required to put workers – who meet certain criteria – into a workplace pension scheme.
In 2015 the Department for Work and Pensions (DWP) has forecast there are 45,000 companies due to stage, the vast majority of these companies will have never set up a pension for their employees before. In 2014 there was ‘only’ meant to be 30,000 companies, although the actual figure turned out to be a lot less. We are just about beyond the tip of the iceberg as far as the number of companies is concerned. Only 3% of UK companies have now staged, so 2015 will see the pressure start to rise for advisers, pension providers and all involved in automatic enrolment.
The DWP proposed simplifications unlikely to make it easier for SMEs the DWP has said it will make life easier for employers under automatic enrolment with some proposed simplifications to the rules. However, I am sceptical as to whether the plans will make it easier for small businesses. When the rules being changed are for Defined Benefit schemes and those with large pots over £1.5m it does not look like the sort of thing that will help small businesses and those who have never set up a pension scheme. I haven’t seen anything that makes me think they’re making it easier for small businesses.
I think there will be bigger questions asked about the profitability of automatic enrolment. With low annual management charges as a result of the charge cap from April, low contributions and low salaries, it is going to take a long time for pension providers to make profits.
The People’s Pension has openly stated they are considering an admin fee to employers, something most insurance companies are already doing.
This year will be important for the providers to figure out their business models and ensure that consumers can have confidence they will be around to pay out their pensions in the future.
I also believe that the low levels of awareness relating to automatic enrolment and workplace pensions will continue. When it comes to the crunch, the majority will turn to their accountant or payroll provider for advice and support. We expect a lot of small businesses will leave it to the last minute.
Tips for getting ahead with automatic enrolment for 2015/2016
- Get ahead now – start planning. Do as much as you can in advance of your staging date. You can set up your pension well in advance without having to make any contributions until your staging date.
- This gives you enough time to get your payroll data ready, this bit is often the tricky part.
- Automatic enrolment can be straightforward if you have simple circumstances. But there is still quite a lot of new language to understand.
- If your business structure is a bit more complicated, then hire some help.