Concerns over impact of AE on smaller businesses

1 March 2016

Concerns are voiced by MPs and the FSB Concerns are voiced by MPs and the Federation of Small Businesses over the impact of auto enrolment on smaller businesses.

As the auto enrolment continues and as smaller businesses start to become involved with it, the the House of Commons Public Accounts Committee has voiced its concern about the impact auto enrolment might have on smaller businesses in the UK. So far 58,000 employers have placed over 5 million people into occupational pension schemes under auto enrolment legislation. However the real test is starting now, as nearly 2 million small firms begin to enrol their staff into workplace pension schemes. With fewer resources available to them to cope with its introduction, many could face an uphill struggle to cope with the challenge.

Committee chairwoman Meg Hillier said:

"Auto-enrolment is entering a critical stage which will affect 1.8 million additional employers and their staff. It is vital people can understand, implement and have faith in the system."

A report by the committee went on to say, "We are concerned about the potential burden on small employers. Smaller employers have fewer resources to administer automatic enrolment and simplifying the process will be critical to the success of the programme."

The concerns by the Commons Public Accounts Committee have been echoed by a leading organisation that represents thousands of small businesses across the UK. Mike Cherry, Policy Director at the Federation of Small Businesses, said:

"The Committee is right to highlight the challenge auto-enrolment poses for smaller businesses. These firms do not have HR departments or in-house pensions experts and many will struggle to get to grips with the legislation. Our latest research shows that while smaller firms generally believe auto-enrolment will be good for their staff, many are still unclear what they need to do in order to comply."

Mike Cherry continues, highlighting what the real tests are for small businesses:

"As the Committee suggests, the real test of auto-enrolment begins now with hundreds of thousands of small businesses set to start enrolling their staff into a pension scheme over the next two years. FSB is calling on Government to monitor the roll out of auto-enrolment closely and take steps to lessen the burden on smaller businesses where possible. Meanwhile, small employers must face the fact that auto-enrolment is coming and the quicker they get to grips with it, the better off they will be."

There's no doubt that the concerns highlighted are very real to the smaller companies concerned. Firstly, those companies that are being proactive about it may not have the relevant skills within their organisation to cope with the roll out fully. The other pressing issue (and perhaps even more important) are the businesses that are burying their head in the sand about auto enrolment altogether. Failure to comply with auto enrolment legislation can lead to fines and sanctions and it would be sad to see businesses go to the wall due to a failure to face up to what can be a much simpler process than it at first may seem.

As both the Commons Public Accounts Committee and the Federation of Small Businesses suggest, the Department of Work and Pensions need to keep a close eye on the process and ensure that it is proactive in looking at how the scheme is working and how it may be improved with more simple online tools to assist employers. Auto enrolment has been a big success so far, so it is important that the government stay ahead of the game and remain proactive to ensure it continues to be so.

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