Many of Britain’s small businesses are sleepwalking towards a workplace pension’s disaster. Thousands of UK Business Owners are missing the legally binding deadlines by which they must introduce occupational pensions for staff – and many will face expensive fines and penalties as a result.
Auto-enrolment, the regime that requires all employers, no matter how large or small, to offer their staff a pension scheme, to enrol all those staff who don’t expressly opt out, and to make contributions on their behalf, is being introduced over a period of about six years.
The gradual roll-out, with smaller businesses given more time to prepare, makes sense. But it has had one unfortunate consequence: since the first 18 months or so of the regime, which began just 2 years ago on 1st October 2012, involved only relatively large companies, most of which already had pension schemes that met most of the auto-enrolment requirements, a false sense of security has developed. Most of these well-resourced businesses found the transition fairly painless, but not all interestingly, so the assumption has been that everyone else would too.
But hundreds of thousands of small businesses are now reaching their deadlines to begin complying with auto-enrolment. Many have never before offered any kind of pension provision, let alone been required to pay into schemes. They don’t have the know-how, experience or resources to comply with auto-enrolment and many are leaving it far too late to sort themselves out.
The alarm bells are now ringing loudly. Recently City solicitor Irwin Mitchell reported that significant numbers of the 12,000 or so businesses with between 62 and 89 employees – the firms that were supposed to begin auto-enrolment on 1 July last year – had taken up their right to ask for a three-month extension. Many of those companies, the law firm added, subsequently missed the final deadline and are now facing fines from the Pensions Regulator.
There will be many more such failures. The latest research from the regulator, published in September, suggests that one in five small employers – and half of all “micro employers” with only a handful of staff – don’t even know by when they’re supposed to be compliant. The Pensions Regulator’s pleas to small employers to give themselves at least 12 months to prepare for auto-enrolment are largely falling on deaf ears.
Nor is there much hope of getting on top of the backlog. The pensions industry – both auto-enrolment scheme providers and the consultants that work with employers – is struggling to cope with the demand for its services. Implementations are taking longer to complete. And, while they may not admit it publicly, many of the household names pension companies aren’t interested in the business of the smallest employees – there’s simply not enough money in it for them.
The fines for non-compliance range from £500 – £2,000 per day. The Pension Regulator’s website lists a dizzying range of penalties, with fines that escalate the longer that non-compliance continues, threats of legal action against offenders, and even warnings that criminal prosecution is possible in the worst cases.
Small businesses shouldn’t count on policymakers taking pity on them. For one thing, organisations with fewer than 50 staff have already been given an extra year – a concession made right at the beginning of the new regime, when ministers were panicking about the recession. With the UK now in a seemingly sustained economic recovery, there will be no repeat of this largesse.
In short, the only option for small businesses is to roll up their sleeves and get on with it. A certain amount of hand-holding is on offer from the regulator, but the complicated work of finding a scheme provider, setting up the right administrative systems, consulting employees and complying with all the red tape is down to employers themselves.
Unfortunately, all the evidence suggests that huge numbers of smaller businesses have not yet recognised the scale of the challenge, or the potential costs of failure.
At Burgis & Bullock we have extensive experience of dealing with Auto Enrolment (having already gone through Staging ourselves), and have a tried and tested solution for businesses of all sizes. We are running regular FREE briefings across the Midlands (see here for details), and would be delighted to review your obligations with you. Auto Enrolment is serious for ALL employers and cannot be ignored. Contact our team on 08455 177 5500 or using our on-line form and ask for Sean or Eamonn for immediate help.