For smaller companies in the UK,
auto-enrolment of all employees into a workplace pension scheme
will become compulsory from 2014. Despite this, only one-in-five
companies have begun to consider the financial impact, reveals a
study by the Association of Consulting Actuaries (ACA).
The study was based on interviews
with 404 employers with 250 or fewer employees. There are over 1.2m
smaller companies in the UK of which some 200,000 have only one
employee and 600,000 fewer than five employees.
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The interviews revealed that 53% of
smaller companies believe auto-enrolment will “add significantly to
costs”.
Some 29% said they are likely to
“level-down” (reduce future pension contributions into existing and
new schemes) to meet the additional cost of newly pensioned
employees.
The ACA commented that the scope
for levelling-down is limited across the UK’s smaller companies as
a whole because at least two-thirds do not offer any pension
arrangements at present.
Overall, the ACA found that 54% of
smaller companies support auto-enrolment, but they expect 35% of
employees to “opt-out” of the new pensions.
Notably, among larger companies an
earlier ACA survey revealed 15% of employees are anticipated to
opt-out. Auto-enrolment for larger companies begins in 2012.
Smaller companies surveyed by the
ACA said the main reasons why employees do not join existing
schemes is cost (84%), a preference to spend (72%) and
disillusionment with pensions (69%).
Smaller companies not offering a
workplace pension scheme provided the primary reasons as cost
(96%), economic conditions in their sector (82%) and insufficient
competitive pressures (53%).
The ACA noted that its surveys
revealed a majority of respondents feel companies with fewer than
five employees should be exempt.
The ACA emphasised that such a decision would greatly ease
administrative challenges faced by the auto-enrolment regime, while
only reducing the numbers eligible for auto-enrolment by around 2m,
leaving 8m to 9m employees still eligible for auto-enrolment.
