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Oh No! Have I GOT To Provide a Pension for All my Employees?

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Well, yes. Is the short answer!

You've probably heard that the government is now bringing in compulsory pensions for all employees. But just from the kinds of queries I am now getting since auto-enrolment media coverage started, it is clear that many SMEs aren't sure what their current obligations are, nevermind what the new ones will be.

The new scheme was launched on 1 October for larger organisations, with roll out for SMEs planned over the next couple of years. Are you up to speed on this? I know a lot of you aren't!

With so many other things to worry about, it is very easy for business owners, especially SMEs with no spare administrative or research capacity, to bury their heads in the sand and wait for someone to come knocking on the door with a reminder. But be warned: you can get fined for not complying with the current pension regulations, whether your employees want them or not.


So what's changed?

Prior to the launch of auto-enrolment, all employers with 5 or more employees had to make available a non-contributory stakeholder pension (that is, employer contributions aren't compulsory). Now this is all well and good, but most stakeholder pension providers don't actually offer schemes for employers with less than 15 employees, leaving many with no options!

For SMEs, this has always been a headache. Obviously you want to do the best for your staff. You value every single one of your employees, especially in small businesses where the loss of one member of staff may be the loss of a whole "department". Simply having the capacity to manage the administration of pensions is already a hurdle, but for many SMEs with young teams, convincing those still paying off graduate debts and saving up for a house to set aside another part of their wage each month to a pension they won't see for half a century is a tall order - especially if one of them is also tasked with sorting it all out as part of their admin duties.

Tackling the £70k Pensions Shortfall

We all know that as a nation, we aren't saving enough for retirement. According to Which?, current retirees are facing an average shortfall of £70,000 each. But we hear time and again from young professionals that they just don't trust financial institutions, and with increasing pressures on their limited take home pay, pensions often look too expensive and retirement too far off to worry about. So what can we do? Well, "nothing" is no longer an option. The government has now decided that since the carrot hasn't worked, it will try the stick.

The Stakeholder Carrot Vs The Contributory Stick

The carrot was the old non-contributory stakeholder scheme, which employers just had to "make available" to employees. The stick is the new auto enrolment pensions scheme. Not only do you now have to make provision, you are also legally obliged to make employer contributions into it. See NEST, which the government has set up as a starting point. This is very dangerous ground for SMEs.
Many SMEs are already having to make hard choices to balance their books. What the government should be doing is giving lenders confidence to finance SME growth, and tackling the underlying issues about why people aren't choosing to save, such as inherent mistrust of the financial services industry and the view of many people that pension schemes are simply another tax.

A Nail in the Coffin of SMEs?

The auto-enrolment pension scheme is intended to be seen as a benefit for employees. But at a time when the government is already relaxing rules on hiring and firing amid growing unease among employees for their own job security and financial stability, I just wouldn't want to see wages or employment rates drop any further as small businesses attempt to find ways to pay for their contributions to the scheme. It may just be another nail in the coffin for small businesses that should be the lifeblood of our economy.

I am worried that employers are secretly assuming their employees will all opt out and are mistakenly thinking they won't need to set everyone up in a scheme - do you agree or is everyone really gearing up for this?