Auto enrolment – challenges for small businesses
Auto enrolment is set to ramp up as the country heads for complete auto enrolment of all employers by 2018. So far, only 3% of employers have needed to comply, but in the next few years, the outstanding 97% will be implicated. There are obviously challenges ahead as resources become stretched both outside and within smaller businesses.
In 2015, 45,000 employers are set to enrol, while in 2016 it will be 45,000 employers per month. So far it seems that medium sized businesses have coped well, however, some have struggled to find a pension provider that will enrol the entire workforce. In addition, some firms have been turned down completely by a private pension provider. As with all businesses, return on investment is essential and it seems that some pension providers do not think that providing a pension scheme for small to medium sized businesses is worthwhile. Others will disagree, but may add hefty ongoing annual charges in order to ensure they make a profit. This leaves the smaller companies in a tricky situation with the choice of pension schemes available dramatically reduced.
Research has shown that medium sized businesses have so far taken less time to prepare for auto enrolment and have had reduced implementation costs in comparison to the larger firms that have had to comply since October 2012.
Many small and micro businesses have no experience of implementing a pension and do not have an active scheme in place. Some companies did not bother offering a stakeholder pension despite the fact that having five or more employees meant that this was a requirement. Auto enrolment however simply cannot be ignored. It appears that awareness of the process is quite high, but action is required and early planning is essential in order to comply with the staging date and avoid potentially hefty fines.
In 2014, the opt out rate for employees was running at 8%, which is relatively low. Research shows that only 5% of younger workers are opting out, whilst 28% of older workers are doing so.
It is thought that overall opt out rates is fairly low so far because of the good communication processes offered by the larger employers that have already had to comply. However, the medium and smaller organisations that are now being affected do not have the huge resources available to provide communication processes such as seminars and workshops. Communication about the process is essential so that employees fully understand the implications of auto enrolment and saving for future retirement. The possible lack of communication resources may impact negatively on opt out rates in the future.
In terms of communication methods that smaller businesses could use, ideally one to one meetings can be carried out, but this is obviously time consuming and may not be possible for certain businesses. Other methods that can be used include team meetings and sending out informative newsletters.