Now that the big UK companies, including the larger umbrella companies, have gone through the process of auto-enrolment for workplace pensions it is the turn of the small and medium enterprises.
The EU definition of an SME is an organisation that employs fewer than 250 workers with an annual turnover of less than 50 million euros. The 1st of April marks the pension auto-enrolment staging date for the first wave of SMEs, amidst warnings from experts that some may be insufficiently prepared to implement the scheme properly.
Thousands of SMEs will reach their staging dates during 2014; however, research by law firm Irwin Mitchell suggests that half the 260 companies surveyed wished that they had allowed more time for preparation. Some of the firms polled had already staged for auto-enrolment, while others were yet to do so.
Respondents reported that the biggest challenges faced by their companies were changes to HR systems and ongoing administrative issues; half those polled cited one or the other as their most overriding concern. Just 28% said that they anticipated problems in implementing auto-enrolment.
Irwin Mitchell’s pensions partner, Nigel Bolton, observed that larger enterprises had conceded that the process had been more challenging than they had anticipated, and he expressed concern that many SMEs had not yet taken these lessons on board as their staging dates approach. He said: “Smaller firms are underestimating what the true impact of auto-enrolment will be. As they do not have the same back office systems as the bigger companies, the problems could be worse.”
Laith Khalaf, head of corporate research at Hargreaves Lansdown, said that the auto-enrolment process was more difficult than many people think. He explained: “Almost all default funds will need to be reviewed to make sure they come in under the 0.75% charge cap and don’t just blindly de-risk people on the assumption they will buy an annuity, which three-quarters of defaults do.”