SMEs are not prepared for auto-enrolment

Nearly two-thirds (60%) of small and medium-sized enterprises (SMEs) surveyed have not budgeted for the additional costs that can be incurred as a result of pensions auto-enrolment, according to research by law firm Irwin Mitchell.

Its research, which questioned 257 SMEs, found that nearly 40% of respondents said their payroll system was not compliant with the legislation.

From April 2014, organisations with between 160 and 250 employees will need to be prepared for auto-enrolment. Employers with fewer staff members will be required to comply up until 2018.

The research also found:

  • Nearly 40% of respondents said the main challenge of auto-enrolment is affordability, closely followed by back-office administration.
  • Almost a quarter of respondents do not offer pensions to employees.
  • Over a third (37%) said the scheme that they operate does not comply with auto-enrolment or they do not know if it does.
  • 60% of respondents have not checked the pension provisions contained within staff contracts and assessed how these affect plans for auto-enrolment.
  • A third plan to introduce a salary sacrifice arrangement to offset any of the costs of auto-enrolment.
  • A quarter have not thought about appointing external advisers to assist with auto-enrolment.

Tom Flanagan (pictured), partner and national head of Irwin Mitchell’s employment and pensions group, said: “There are some uncomfortable findings in this report.

“Although 80% of SMEs said they have started their auto-enrolment preparations, on closer inspection, it appears many are not ready in some crucial areas.   

“There are many pitfalls to watch out for, including changes to employment contracts and pension scheme rules, and restructuring employee benefits along with reviewing and replacing HR and payroll systems. 

“Choosing the wrong option could involve committing time and resources in the wrong areas, or with an unsuitable solution.

“For those organisations that fail to deal with auto-enrolment compliance adequately, The Pensions Regulator has a significant arsenal of statutory remedies at its disposal, including the ability to levy fines of up to £10,000 per day in certain circumstances for non-compliance.

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“From the results of this survey, it is clear that SMEs need further support when it comes to auto-enrolment.

“What is now called for, we believe, is a more streamlined and cost-effective tool to help smaller organisations manage the transition, particularly in light of the recent government statements about requiring the employer to meet the cost of advisors and consultants without being able to pass them on to the scheme or the employees.”