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10/05/2016

Business concerns: Introduction of auto-enrolment

In a recent survey of 500 UK businesses, conducted on behalf of R3, nearly a quarter (23%) were concerned that auto-enrolment of pensions would have a significant financial impact on their business.

This was the same proportion that was concerned about Brexit. And while debate around remaining or leaving the EU has been at the centre of headlines for some time, and will continue to dominate news cycles until June, the roll out of the new pension scheme has been on a much quieter scale.
 
This is understandable given that its introduction has been slow and phased, dependent on the size of the business. Very large employers were the first to introduce the measures, some began to do so as early as 2012. The final date for all small businesses to have the scheme in place is April 2017.
 
The Pensions Regulator forecasts that more than 1.3m SMEs, micro businesses and new employers will reach this “staging date”.
 
Unsurprisingly, our research showed that it was small businesses that were most concerned about the new legislation. 40% of companies with 11-15 employees were worried, compared to 19% of those with 26-100.
 
There is clearly a substantial financial implication for businesses that now have to contribute to employee pensions. On top of the actual contributions, there is the cost of getting ready for auto-enrolment and making sure your business remains compliant.
 
These compliance costs can be a problem once a business enters an insolvency procedure, too. The cost to the insolvency practitioners of setting up a missing auto-enrolment scheme when they go into a business that needs to be closed down can mean less money back for creditors with only limited benefit for employees.
 
According to a survey by the Federation of Small Businesses, published in January, three-in-four (76%) respondents felt it would put too much pressure on businesses like their own.
 
Most concerning, one-in-four (25%) were not confident that their business would be able to cope with auto-enrolment.
 
And while pension contributions will be quite low to start, employers must pay a minimum of 3% of basic pay per employee by 2018.
 
On the other hand, some of the costs of pension contributions can be offset by a lower National Insurance bill available through salary sacrifice pension schemes.
 
For small companies in particular, budgeting will be crucial to successfully implement and thrive after auto-enrolment. If companies are unable to cope with the financial pressure we could see that reflected in a rise of corporate insolvencies figures in future quarters.
 
Any business concerned about dealing with the cost of auto-enrolment should seek professional advice. 

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.