Out-Law News 2 min. read

Government will give small businesses extra time to prepare pension for auto-enrolment


Small businesses are to be given an additional year to prepare to enrol their workers automatically into a pension scheme, the Government has said.

Employers with fewer than 50 staff will not have to begin auto-enrolment for their staff until May 2015, instead of April 2014 as previously indicated.

In addition, pensions contributions will remain unchanged until all businesses have begun to automatically enrol their employees into a workplace pension scheme or the National Employment Savings Trust (NEST).

However, the Government has confirmed that automatic enrolment will begin for large employers in Autumn 2012 as originally planned. All employers will remain in the scope of the plans.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the move will be welcomed by business. "Of course, the sooner more workers start saving for retirement, the better - but in the current climate imposing additional costs on small businesses, even if not due until 2014, wasn't going to garner many plaudits from the business world," he said.

"The delay may also be good in the long run for pension saving. If auto-enrolment is to be a success, it is crucial that workers have the confidence to save," he said. "Auto-enrolling workers at a time when many may have little spare cash might have led to increased opt-outs and put some workers off pension saving for good. The Government's hope is that 2015 will be a more suitable time than 2014."

Businesses with fewer than 3,000 workers would also see a slight delay to the introduction of the reforms when the Government's exact timetable is published in January 2012, Tyler said.

Between October 2012 and September 2016 employers will have to start auto-enrolling their workers into a pension scheme which meets minimum requirements. Employers will be required to automatically enrol 'eligible jobholders' aged between 22 and the State Pension age who are earning more than £7,475 a year.

Minister for Pensions Steve Webb said that failing to introduce the reforms on time would leave people poorer in retirement but that tough economic times made it right to "soften the timetable" for smaller businesses.

"We recognise that small businesses are operating in tough economic times so we are softening the timetable for implementation to give them some additional breathing space. This is a sensible step that ensures long term pension issues are addresses while meeting the short and medium term needs of small business," he said.

"We are committed to ensuring the employees of these small businesses get the chance to save and that it why no one will miss out," he said.

Joanne Segars, chief executive of industry body the National Association of Pension Funds (NAPF), said she was "disappointed" by the delay.

"Small businesses are absolutely critical to making these reforms work, because their staff are the least likely to have a workplace pension. The decision also risks creating competitiveness issues where small firms are competing with larger companies who are going ahead with auto-enrolment," she said.

"Businesses will quite rights be wondering how much faith they can have in the system, and whether more changes are in the pipeline," she said.

Last week, professional organisation the Institute of Directors (IoD) called on the Government to delay the reforms for all employers by two years.

Postponing the phased introduction of auto-enrolment would give businesses more time to prepare and avoid undermining weak consumer spending, the IoD said.

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