Institute of Directors research: Auto-enrolment will hit small firms the hardest

Pensions auto-enrolment will hit small firms the hardest, according to research by Institute of Directors. 

The research found that, of the 43% of respondents which do not have employer contributed pension arrangements in place, 95% are small or medium-sized enterprises (SMEs).

One-third (34%) of employers said they would pay for the cost of auto-enrolment, which comes in with the 2012 pension reforms, from business profits.

More than half (57%) of respondents believe the added time burden derived from auto-enrolment will be high, while 10% believe it will be very low.

One-third (33%) of respondents said they would take the cost of contribution out of employees’ salaries by freezing their pay, while 9% will decrease salaries to offset the cost.

One-fifth (20%) of employers are not aware that there will be legislation commencing in 2012 that requires them by law to enrol employees into a pension scheme and to make contribution on their behalf.

When asked about opting out of pensions, 16% of respondents said that none of their employees will opt out. A quarter (24%) of employers said that they thought the opt-out rate could be as high as 51% or more.

An inability to afford the contributions was cited by 48% of employers as the biggest reason of why employees might opt out.

Miles Templeman, director-general at the Institute of Directors, said: “The government should not underestimate the cost burden that auto-enrolment is going to place on small firms.

“Bigger businesses will mostly have pension arrangements for employees set up. Of course, we need to improve retirement provision in the UK, but yet again it is the small entrepreneur who is hit.

“Since the government is not prepared to change course on what is essentially a major piece of employment regulation, it needs to compensate for this burden with an equally significant de-regulation elsewhere.

“Phasing in auto-enrolment buys us some time, but the private sector cannot be expected to bounce back and create new jobs in the longer run if the government keeps dropping new cost burdens on firms.”

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