Duncan Reeves, Employee Benefits Specialist at Sanlam Wealth Planning, explains how Government arm-twisting over workplace pensions is leading to a reluctance for many SMEs to prepare.
I spend a great deal of time working with the SME community and two characteristics shine through.
First, they enjoy being their own boss and second, they run a tight ship when it comes to budgets.
So what has that got to do with workplace pensions?
The introduction of workplace pension legislation makes it compulsory for all business owners to enrol eligible employees into a qualifying scheme; this is known as auto enrolment.
Historically, if a small business owner wanted to offer a pension to employees, the business owner would have full control of the decision-making process, the pension scheme and the costs involved.
So for these business owners, used to having control over their decisions, it can feel like arm twisting by the Government. This, I believe, partly explains why many business owners are reluctant to begin the process of auto enrolment.
The other reason is cost. There’s no doubt about it that providing a pension is a cost burden that many small business owners will find hard to bear. For many, trying to work out the most cost-effective option is, putting it mildly, confusing. This isn’t helped by the fact that providers are changing their charging structures on a regular basis.
New kids on the block
The introduction of workplace pensions seems to have divided the marketplace into two.
First, we have the traditional high street names. Some of these have become more selective about who they want in their scheme, which is reflected in higher costs, often charging one-off or ongoing employer fees to set up and run a pension scheme.
Second, auto enrolment has triggered a wave of new providers, offering a simpler proposition; open to working with any business with no set-up fees.
That dynamic fundamentally changed last year when a number of the newer providers also started charging fees. While I’m sure there are sound commercial reasons for doing so, it represents another layer of costs the SME community may not have budgeted for.
Most professionals, whether they work in payroll, HR or pension advice have been encouraging the SME community to start planning for workplace pensions as early as possible.
This is particularly important for the hundreds of thousands of businesses staging (the date by which a workplace pension has to be in place) in the summer of 2017; a period that has become known as the capacity crunch. This is a time when an increase in applications, coupled with a reduction in staff availability, could lead to some business owners making hasty and expensive decisions at best, or missing the deadline and having to pay costly fines, at worst.
I’m hoping that the introduction of pension fees from the new providers will act as a call to arms for the SME community and will help focus their minds on securing a quality pension solution, at a cost they can afford, sooner rather than later.
And I hope that this doesn’t become the reason why business owners bury their heads in the sand, hoping auto enrolment will go away…