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SMEs' auto enrolment compliance an M&A due diligence issue, says expert


Businesses could be put off buying SMEs if they are not meeting their auto enrolment obligations, an expert has said.

Pensions regulation specialist Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said SMEs are not exempt from the auto enrolment regime and should take steps now to comply to avoid sanctions.

"The Pensions Regulator has already shown its teeth with fines and penalties – and ultimately there are criminal sanctions for the worst offenders," Barton said. "Even if the Regulator chooses not to fine – it can insist on remedial action to correct underpaid contributions, even where the underpayment was an innocent mistake. Such remedial action can run to thousands and even hundreds of thousands of pounds."

"It’s also worth noting that, in the event of a potential acquisition, if the target cannot confirm and demonstrate compliance then there is a risk that the would-be purchaser will pick up the tab for claims, complaints and fines and penalties in future. This is another reason for taking compliance seriously," he said.

Barton said would-be SME purchasers should make sure they "think about auto enrolment compliance in the due diligence process of any acquisition and consider what sort of legal protection they require".

Barton was commenting after new research revealed that more than a quarter of SMEs in the UK have not considered how to facilitate the automatic enrolment of their staff into a workplace pension scheme. Pensions provider NOW: Pensions said that its findings show that nearly 350,000 UK businesses are not prepared to comply with the auto enrolment requirements.

Under the auto enrolment scheme, employers have to automatically enrol workers into a defined contribution (DC) pension scheme which meets certain minimum requirements, and are legally obliged to make contributions towards the pensions of workers that do not opt out of the scheme once enrolled.

There are different 'staging dates' on which businesses have to comply with the auto enrolment requirements. Auto enrolment began for the largest employers in October 2012, and the government has estimated that it will ultimately result in up to 10 million people saving more towards their retirement or saving for the first time.

The 1 June was the staging date for auto enrolment for more than 1.2 million employers. Those businesses have fewer than 30 staff. There are further staging dates for companies up until February 2018. The Pensions Regulator writes to firms one year ahead of their staging date to remind them of their duties.

NOW: Pensions said a study in March of 269 SMEs yet to have had their auto enrolment staging date found that 27% of those companies "haven’t given any thought to how they’ll find a provider".

It said that 52% of respondents said they "don’t think they’ll have any issue finding a pension provider" and just 9% said they were concerned that pensions providers could "‘cherry pick’ business".

Barton said that although elements of auto enrolment have been simplified since it was first introduced for big companies, it remains complex.

"The hardest part to get right is the alignment of payroll processes to the requirements for assessment and contributions," Barton said. "There are plenty of other tricky issues to contend with and pitfalls arising as a result."

In March, the Pensions Regulator said its research had shown that more than 20% of the firms due to begin automatically enrolling their employees into a workplace pension scheme between June and November this year had not drawn up plans to meet their duties by the end of last year. The Pensions Regulator has recommended that employers start preparing 12 months ahead of their 'staging date'.

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