Government plans to automatically enrol employees into pension schemes could significantly increase costs for businesses, according to a new report.
Research by the Association of Consulting Actuaries (ACA) revealed that only one in five small companies has started to consider the impact of the new statutory pension rules. The automatic enrolment of workers into the pension scheme is due to come into effect in 2014.
Commenting on the survey results, ACA chairman Stuart Southall said: “The success of the auto-enrolment policy in smaller firms is likely to hinge on how well the economy recovers over the next few years. The opt-out rates expected are much higher than we found amongst larger organisations – 35% as against 15%.”
Over half of firms say the reforms will ‘add significantly to costs’, while 29% say they are ‘likely’ to reduce future pension contributions into existing and new schemes to meet the additional cost of newly pensioned employees.
Nevertheless, 54% of small businesses say they support automatic enrolment, but they expect 35% of employees to ‘opt-out’ of the new pensions.
Furthermore, nearly all the small firms currently not providing pensions say they do not principally because of cost, and half of those say that those with fewer than five employees should be exempt.
“The ‘cost of pensions’ to both employees and employers is the ‘big issue’ that has prevented the extension of pension provision to date in the sector. Whilst auto-enrolment may break the mould, if we are all still paying higher taxes to recover over-spending, it’s difficult to see how this will not bump up opt-out rates”, added Southall.
© Crimson Business Ltd. 2010